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

By: Rashid Javed | Updated on: September 8th, 2022

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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