Dealing With Changes in Product Mix Using Weighted Averages

As we have seen, product mix is one of the most important influences on breakeven point. Change the product mix, and if there are wide differences in variable costs and selling prices in the mix, the profitability can change quickly.

In this chapter we will focus on two breakeven methods that employ weighted averages. The first is the weighted average contribution margin method, and the second is the weighted average selling prices method.

The Formula

The product mix can be used to determine the weighted average contribution margin as is shown in the following formula:

Breakeven Units (BEU) = Fixed Costs ÷ Weighted Average

Contribution Margin.

Breakeven and cost-volume-profit ...

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