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Sales Mix Break

The document describes how to calculate the break-even point for a sales mix of multiple products. It involves determining the weighted average contribution margin per unit for the sales mix based on each product's contribution margin and sales mix percentage. This weighted average CM is then used to calculate the total units required to break-even by dividing total fixed costs by the weighted average CM. The number of units for each product at break-even is calculated by multiplying the total break-even units by each product's sales mix percentage. Finally, the break-even point in dollars is calculated by multiplying the units of each product by its price.

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255 views1 page

Sales Mix Break

The document describes how to calculate the break-even point for a sales mix of multiple products. It involves determining the weighted average contribution margin per unit for the sales mix based on each product's contribution margin and sales mix percentage. This weighted average CM is then used to calculate the total units required to break-even by dividing total fixed costs by the weighted average CM. The number of units for each product at break-even is calculated by multiplying the total break-even units by each product's sales mix percentage. Finally, the break-even point in dollars is calculated by multiplying the units of each product by its price.

Uploaded by

laur33n
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Sales Mix Break-even Point Calculation Percentage

+ Product C CM per Unit Product C Sales Mix


Sales mix is the proportion in which two or more Percentage
products are sold. For the calculation of break-even = Weighted Average Unit Contribution Margin
point for sales mix, following assumptions are made Product A B C
in addition to those already made for CVP analysis: Sales Price per Unit $15 $21 $36
Variable Cost per Unit $9 $14 $19
The proportion of sales mix must be Contribution Margin per Unit $6 $7 $17
predetermined. Sales Mix Percentage 20% 20% 60%
The sales mix must not change within the relevant $1.2 $1.4 $10.2
time period. Sum: Weighted Average CM per Unit $12.80

The calculation method for the break-even point of Step 3: Calculate total units of sales mix required to
sales mix is based on the contribution approach break-even using the formula:
method. Since we have multiple products in sales mix
therefore it is most likely that we will be dealing with Break-even Point in Units of Sales Mix = Total Fixed
products with different contribution margin per unit Cost Weighted Average CM per Unit
and contribution margin ratios. This problem is Total Fixed Cost $40,000
overcome by calculating weighted average Weighted Average CM per Unit $12.80
contribution margin per unit and contribution margin Break-even Point in Units of Sales Mix 3,125
ratio. These are then used to calculate the break-even
point for sales mix. Step 4: Calculate number units of product A, B and C
at break-even point:
The calculation procedure and the formulas are Product A B C
discussed via following example: Sales Mix Ratio 20% 20% 60%
Example: Formulas and Calculation Procedure Total Break-even Units 3,125 3,125 3,125
Product Units at Break-even Point 625 625 1,875
Following information is related to sales mix of
product A, B and C. Step 5: Calculate Break-even Point in dollars as
Product A B C follows:
Sales Price per Unit $15 $21 $36 Product A B C
Variable Cost per Unit $9 $14 $19 Product Units at Break-even Point 625 625 1,875
Sales Mix Percentage20% 20% 60% Price per Unit $15 $21 $36
Total Fixed Cost $40,000 Product Sales in Dollars $9,375 $13,125 $67,500
Sum: Break-even Point in Dollars $90,000
Calculate the break-even point in units and in dollars.
Calculation

Step 1: Calculate the contribution margin per unit for


each product:
Product A B C
Sales Price per Unit $15 $21 $36
Variable Cost per Unit $9 $14 $19
Contribution Margin per Unit $6 $7 $17

Step 2: Calculate the weighted-average contribution


margin per unit for the sales mix using the following
formula:

Product A CM per Unit Product A Sales Mix


Percentage
+ Product B CM per Unit Product B Sales Mix

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