# CMA Study Group

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## CVP Analysis -- Multi-Product Calculations

• #### 1.  CVP Analysis -- Multi-Product Calculations

Posted 10-27-2020 07:41 AM
Product 1
Product 2
Product 3
Budgeted sales units
10,000
7,000
3,000
Selling price per unit
\$1,000
\$5,000
\$8,000
Variable costs per unit
\$400
\$3,000
\$4,000
Product fixed costs
\$5,000,000
\$12,000,000
\$10,000,000
 A. 16,875 B. 16,833 C. 10,830 Answer (C) is correct.The solutions approach is to divide the total fixed costs by the weighted average unit contribution margin. The total fixed costs are \$27,000,000 (\$5,000,000 + \$12,000,000 + \$10,000,000). The total sales for the three products would be \$10,000,000, \$35,000,000, and \$24,000,000, or a total of \$69,000,000. The unit contribution margins are \$600, \$2,000, and \$4,000. Multiply these unit margins by the budgeted sales to get the total contribution margin from each product: \$600 × 10,000 units = \$6,000,000 for Product 1. For Product 2, multiply the \$2,000 margin by 7,000 units to get \$14,000,000, and for Product 3, multiply the 4,000 margin times the 3,000 units to get \$12,000,000. Adding the three contribution margins together, you get a total budgeted CM of \$32,000,000. If the question had asked for an allocation based on physical quantity, which it did not, the next step would have been to divide the \$32,000,000 total CM by the 20,000 total units to get an average CM of \$1,600 per unit. Next, divide the \$27,000,000 of fixed costs by the \$1,600 unit CM to arrive at a breakeven point of 16,875. However, based on weighted sales, divide the \$10,000,000 of Product 1 sales by the total sales of \$69,000,000 to find that Product 1 makes up 14.4927% of total sales. Product 2 makes up 50.724638%, while Product 3 composes 34.782609% of total sales. Multiply these percentages by the respective unit contribution margins to get the composite unit CM: (\$600 × .144927) + (\$2,000 × .507246) + (\$4,000 × .3478926) = \$2,492.7536. Divide the \$27,000,000 of fixed costs by \$2,492.7536 to get 10,830 units. D. 4,091

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• #### 2.  RE: CVP Analysis -- Multi-Product Calculations

Posted 10-28-2020 04:26 AM
Regularly, the multi-product BEP is weighted by the percentage of sales volume.

In this question, the given information said: "Assuming the company's dollar sales mix remains the same, the company's breakeven point in sales units is".

It means the volume mixture of the 3 products in dollar sales would keep the the same (not the unit sales as). That's why you shall take dollar sales as weighting element instead of the unit sales

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Phuc Ngo Mai Thien
Viet Nam
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• #### 3.  RE: CVP Analysis -- Multi-Product Calculations

Posted 10-28-2020 04:29 AM
*It means the mixture of the 3 products in dollar sales would keep the the same

I mistakenly said the "volume mixture" instead of the "mixture"

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Phuc Ngo Mai Thien
Viet Nam
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