November 2008
Beginner
448 pages
11h 33m
English
Content preview from Budgeting Basics and Beyond
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4.5. Sales Mix Analysis
Break-even and cost-volume-profit analysis requires some additional computations and assumptions when a company produces and sells more than one product. In multiproduct firms, sales mix is an important factor in calculating an overall company break-even point.
Different selling prices and different variable costs result in different unit CM and CM ratios. As a result, the break-even points and CVP relationships vary with the relative proportions of the products sold, called the sales mix.
In break-even and CVP analysis, it is necessary to predetermine the sales mix and then compute a weighted average unit CM. It is also necessary to assume that the sales mix does not change for a specified period. The break-even formula for the company as a whole is:
Example 11
Assume that Knibex, Inc., produces cutlery sets out of high-quality wood and steel. The company makes a deluxe cutlery set and a standard set that have these unit CM data:
| Deluxe | Standard | |
|---|---|---|
| Selling price | $15 | $10 |
| Variable cost per unit | 12 | 5 |
| Unit CM | $ 3 | $ 5 |
| Sales mix | 60% | 40% |
| (based on sales volume) | ||
| Fixed costs | $76,000 | |
The weighted average unit CM = ($3)(0.6) + ($5)(0.4) = $3.80. Therefore, the company's break-even point in units is:
Which is divided in this way:
NOTE
An alternative is to build a package containing ...
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