CMA Study Group

CVP Analysis -- Multi-Product Calculations

  • 1.  CVP Analysis -- Multi-Product Calculations

    Posted 30 days ago
    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
    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.



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

    Posted 29 days ago
    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 29 days ago
    *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
    ------------------------------