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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7 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?

    1. dounia

      variable costs won’t stay equal to 740000 if the sales changed since they are variable , first we were selling 2000000 dollars and we had 740000 dollars variable costs for this level of sales , but when we break-even we sell only 1900 000 so automatically variable costs will decrease . Hope i helped 🙂

  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

  6. Dipesh

    Sppu rs20 vcpu rs12, depn 4r normal cap..50000 units rs34000, rent fixed rs20000 ,supervision cost 4r every 8000units rs 8000,repair & maitenance 4r every 5000units rs10000……solution..?

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