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## multi product breakeven point question (part 2)

• #### 1.  multi product breakeven point question (part 2)

Posted 05-15-2024 10:25 AM
DOUBT- Why didn't they solve by taking WACMR into consideration in denominator and also what is composite units?

A company with \$280,000 of fixed costs has the following data:
Product A       Product B
Sales price per unit         \$5                  \$6
Variable costs per unit     \$3                  \$5
Assume three units of A are sold for each unit of B sold. How much will sales be in dollars of product B at the breakeven point?
A. \$840,000
B. \$240,000
C. \$280,000
D. \$200,000

SOLUTION-   The breakeven point equals fixed costs divided by unit contribution margin. The composite unit contribution margin for A and B is \$7 {[3 units of A × (\$5 – \$3)] + [1 unit of B × (\$6 – \$5)]}. Thus, 40,000 composite units (\$280,000 ÷ \$7), including 40,000 units of B, are sold at the breakeven point. Hence, sales of B at the breakeven point equal \$240,000 (40,000 units × \$6).

• #### 2.  RE: multi product breakeven point question (part 2)

Posted 05-16-2024 02:05 AM

Hi,

If you check that equation, it is similar to WACMR. You can use CM per unit to calculate break even units or CM ratio to calculate break even dollars.

(.75*2 + .25*1 = 1.75)

280,000/1.75 = 160,000 units

160,000* .25 = 40,000 (B's share)

40,000*6 = 240,000 (B's break even sales)

Hope this helps

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Fuhadh Saneen Seethi Marakkarakam
Supervisor
MUSCAT
Oman
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• #### 3.  RE: multi product breakeven point question (part 2)

Posted 05-16-2024 12:17 PM

Composite units are the units which are sold as a set of product rather than individual (eg: 4 chair is need to buy with a dining table. It's sales have the ratio of 1:4). In this question, 3 units of A and 1 units of B is considered as a single sale. So we can find the answer in same method used in single product, by considering the composite set as a single product.

I hope you will understand this way.

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Sreejith Mariyappan
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