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:
- Sales: $1,400,000
- Contribution margin ratio: 60%
- Sales: $600,000
- Contribution margin ratio: 70%
- Prepare contribution margin income statement for the company.
- Calculate break-even point in dollars.
(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
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