Break-even analysis with multiple products

By: Rashid Javed | Updated on: October 24th, 2021

The method of calculating break-even point of a single product company has been discussed in the break-even point analysis article. In this article, I would explain the procedure of calculating break-even point of a multi product company. A multi-product company means a company that sells two or more products.

The procedure of computing break-even point of a multi product company is a little more complicated than that of a single product company.

Formula:

A multi product company can compute its break-even point using the following formula:

break-even-analysis-with-multiple-products-img1

For computing break-even point of a company with two or more products, we must know the sales percentage of individual products in the total sales mix. This information is used in computing weighted average selling price and weighted average variable expenses.

In the above formula, the weighted average selling price is worked out as follows:

(Sale price of product A × Sales percentage of product A) + (Sale price of product B × Sale percentage of product B) + (Sale price of product C × Sales percentage of product C) + …….

and the weighted average variable expenses are worked out as follows:

(Variable expenses of product A × Sales percentage of product A) + (Variable expenses of product B × Variable expenses of product B) + (Variable expenses of product C × Sales percentage of product C) + …….

When weighted average variable expenses per unit are subtracted from the weighted average selling price per unit, we get weighted average contribution margin per unit. Therefore, the above formula can also be written as follows:

break-even-analysis-with-multiple-products-img2

An example would be very helpful to understand the whole procedure. Consider the following example of a multi product company:

Example:

The Monster company manufactures three products – product X, product Y and product Z. The variable expenses and sales prices of all the products are given below:

break-even-analysis-with-multiple-products-img3

The total fixed expenses of the company are $50,000 per month. For the coming moth. Monster expects the sale of three products in the following ratio:
Product X: 20%;
Product Y: 30%;
Product Z: 50%

Required: Compute the break-even point of Monster company in units and dollars for the coming month.

Solution:

Monster company sells three products and is, therefore, a multi product company. Its break-even point can be computed by applying the above formula:

break-even-analysis-with-multiple-products-img1

= $50,000 / $95* – $55**
= $50,000 / $40
= 1,250 units

*Weighted average selling price:
= ($200 × 20%) + ($100 × 30%) + ($50 × 50%)
= $40 + $30 + $25
= $95

**Weighted average variable expenses:
= ($100 × 20%) + ($75 × 30%) + ($25 × 50%)
= $20 + 22.50 + 12.50
= $55

The company will have to sell 1,250 units to break-even. Now I would compute the number of units of each product to be sold:

Product X (1,250 × 20%): 250 units
Product Y (1,250 × 30%): 375 units
Product Z (1,250 × 50%): 625 units
Total:250 units + 375 units + 625 units = 1,250 units

As the number of units of each individual product to be sold have been computed, I can compute the break even point in dollars as follows:

break-even-analysis-with-multiple-products-img4

The break-even point of Monster company is $118,750. It can be verified by preparing a contribution margin income statement as follows:

break-even-analysis-with-multiple-products-img5
More from Cost volume and profit relationships (explanations):
A D V E R T I S E M E N T
66 Comments on Break-even analysis with multiple products
  1. Thank you for taking the time to write this article. It describes the procedure of calculating break-even point for a company selling three products. Can I use the same procedure for any number of products? Is it also applicable to services businesses?

    1. It’s so help full but my question is how can I calculate the break even units when selling price is not given and I provide by only variable cost per unit for each product, fixed cost and sales mix pacentage for each product

    2. Please how do I calculate for a company with multiple products having different sizes(eg 250g, 500g) and different prices for different individuals.

    3. My question is how do you calculate break even in value when only given sales contribution 40% product J and for product K 50% and budgeted 420 00 and sales ratio is 1:3 and fixed cost 120 000

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  2. Hi
    First I would like to thank you for taking time to publish this article, it’s really helpful. However I have a question concerning the calculation of the breakeven for a service company (Business school) that is teaching 3 different programs, How can this method be applied?

  3. Thanks
    I am Having a hard time for break even analysis because we are a multiprodut firm. Is there any one who has a wokksheet in which i can calculate breakeven point for company having more than 50 products?
    kindly email me. [email protected] Thank you very much. I will really appreciate it if somebody can help me

  4. Hi can you make help me with this . We are required to do Break even analysis in our Feasibility Study without even teaching us how to . kindly mail me [email protected] Thank you I’ll send you the datas if you will help me .

  5. Great article. This is exactly what I have been looking for.
    I plan to import and make jewellery and I am currently working on my business plan. I am having a heard time working out my break even point as I will be selling multiple products at different prices. Please can you send me a spreadsheet with the formula as also requested by Nil.

    Kind Regards
    Jess

  6. Hey! Thanks a lot for this article. I have a doubt regarding the allotment of total variable costs to individual products. For example, I have a retailing business and its monthly variable cost is Rs. 112500. Now tell me how to divide this amount among three products of retailing, that are, clothing, belts&hats, and accessories.
    Kindly help me with this soon.

    contact- [email protected]

  7. Hi Accounting management, been looking everywhere for this. I am managing an educational seminar and I’m using the techniques above to sell registration fees, booth and advert space as multiple products against the hall rental, food and speakers fees as my costs. May I have a copy of the excel spreadsheet?

  8. Please help me solve this. You can email me the result please.
    The selling prices for 3 products is sh.30, sh30.50 and sh40. variable cost amount to sh sh50,sh60 and sh70. The three products contribute 50%,30% & 20% of the total revenue respectively. calculate breakeven point of the company in units

  9. Hi I need to calculate break even point but I can’t know how to estimate Sales percentage of product for each product can you help me ???? I already started doing excel program

  10. This is very helpful. How can I calcuate break even for large number of products? do you have a spreadsheet to share? thank you!

  11. Hello is it possible to get a copy of the multiple products worksheet? I have 9 departments each supplying both products and services. That would be extremely appreciated. Thank you. Email: [email protected]

  12. THANKS SO MUCH FOR THE LIGHT BEAMED ON THE TOPIC. HOW DO I CALCULATE THE SALES MIX OR PROPORTION OF SALES OF EACH PRODUCT THE PROPORTIONS ARE NOT GIVEN? WHAT VARIABLES SHOULD I USE? UNITS SOLD OR THE SALES VALUE?

  13. COASTAL TEJERERO

    I am Having a hard time for break even analysis because we are a multiproduct firm. Is there any one who has a wokksheet in which i can calculate breakeven point for company having more than 50 products?
    kindly email me. [email protected]. Thank you very much. I will really appreciate it if somebody can help me

  14. Great explanation.
    I have a doubt, though; it would seem that this method would be useful only if the proportion of sales is relatively constant. It occurs to me that if I have expensive and cheap items and the quantities may have large fluctuations then I could have very different Break Even calculations.
    I was thinking that for such a case the break even would not be a unique value but rather an n-dimensional boundary condition problem which I would then have to optimize. (I vaguely remember how).
    Your thoughts?

  15. Hi

    I am working in the clothing industry, manufacturing and selling multiple products to customers. Under the dresses category there are multiple dress types, under the jackets there different jacket types and so on. I also have the same question as to how to I calculate the break-even points (both quantity and value)? My email address is [email protected]

  16. Many thanks for the explanation and the example. I was struggling a lot to work this out but can now visualise it. I have a question – is the variable cost per product not the same as the COGS?

    It would be great if you can share the excel template on [email protected]

  17. Hi,
    Thanks for giving such detailed solution.
    I have just one doubt. Can you explain me the logic of this formula?

  18. Thank you for publishing this article. But l have a question, l hope l am not late, from your calculations you had already determined the product quantity ratios, is there any method we can use the break even quantity to determine the number of units that have to be produced in order to break even. My email address [email protected]

  19. Mr Koitany has an arable of land of 300ha which he wants to produce maize and grain sorghum in
    the ratio of 5:3: he has the following information
     Gross production value per hectare of maize-Kshs 45,000
     Gross production value per hectare of sorghum –Kshs18,000
     Variable cost per hectare of maize =Kshs 20,000
     Variable cost per hectare of sorghum =Kshs 24,000
     Fixed cost is Kshs 7,500,000
    a) Determine the breakeven Ha to cover the costs for maize and sorghum.

  20. Very simple to understand for managers with no degree in accounting or business administration. I found it useful. Thank you.

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