# Exercise-2 (Break-even analysis of a multiproduct company)

PQR company sells two products – product A and product B. The total fixed expenses of the company are \$1,197,000. The monthly data of PQR is as follows:

Product A:

Product B:

Required:

1. Prepare contribution margin income statement for the company.
2. Calculate break-even point in dollars.

## Solution:

### (2) Computation of break-even point:

The PQR company sells two products. Its break-even point can be easily computed by dividing the total fixed expenses by overall contribution margin ratio (CM ratio).

Fixed expenses/Overall CM ratio

= 1,197,000/.63

= \$1,900,000

### 5 Thoughts on Exercise-2 (Break-even analysis of a multiproduct company)

1. Phillipa

Can I have the full calculation of 37%

2. Accounting For Management

@Phillipa
(740,000/2000,000)*100 = 37% or 0.37

3. FUNG WAI GHEE

the break even point \$1,900,000 can not cover the fixed expenses after deducted by variable expenses \$740,000, why?

4. Accounting For Management

It should cover the variable expenses at break-even point

BEP = VE + FE

1,900,000 = 703,000* + 1,197,000

*1,900,000(.37)

5. Kenny Rodgers

Why are the sales doubled in the income statement?
From \$700,0000 in the introduction
To \$1,400,000 in the income statement
And the same for product B