CMA Study Group

 View Only
  • 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


    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 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.

    Sreejith Mariyappan