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

    Posted 12 days ago
    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 11 days ago


    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

    Fuhadh Saneen Seethi Marakkarakam

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

    Posted 11 days ago

    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.

    Sreejith Mariyappan