Accounting Assignment Help With Multi-Products Break Even Point

1.4 Multi – Products Break Even Point

So far we have considered the breakeven point for the single product. Often the Factory produces more than one product. How do we find out BEP then? It is done on the basis of weightage average contribution. Weights are the number of units produced for each product.

Let us consider figures to illustrate the approach.

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Products

A B C

No. of units 5000 4000 6000

Selling price($) 100 80 60

Variable cost ($) 60 40 45

Contribution ($) 40 40 15

P/V Ratio (%) 40 50 25

Weighed Average contribution

A – 40 x 5000 = 40/3

15000

B - 40 x 4000 = 32/3

15000

C – 15 x 6000 = 18/3

15000

90/3 = $ 30

Now given fixed cost of 300000, BEP works out to be $ 300000/30 = 10000. Of course, this BEP will stand so long as the weights given are not altered. This means that if the product –mix changes, BEP will change.

Let us have a look on the multi product BEP. Share of different products in BEP of 10000 units is as follows.

Units Contribution

A – 10000 x 5/ 15 = 10000/3 40 x 10000/ 3 = 400000/3

B – 10000 x 4/15 = 40000/15 40 x 40000/15 = 320000/3

C – 10000 x 6/15 = 60000/15 40 x 60000/15 = 180000/3

Total contribution = ( 400000/3 + 320000/3 + 180000/3 )= $ 320000

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