# 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:**

- Sales: $1,400,000
- Contribution margin ratio: 60%

**Product B:**

- Sales: $600,000
- Contribution margin ratio: 70%

**Required:**

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

## Solution:

### (1) Income statement:

### (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

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