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:

(1) Income statement:

exercise-2-cvapr-img1

(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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5 Comments 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

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