Exercise-8 (Shift in sales mix, break-even analysis of a multiproduct company)

By: Rashid Javed | Updated on: December 3rd, 2023

Digital World Company sells three products – Product A, Product B and Product C. The budgeted contribution margin income statement of the company for the coming month is given below:


Budgeted break-even point = Fixed expenses/CM ratio
= $447,200/0.52
= $860,000

The actual sales data for the month is given below:

  • Product A: $320,000
  • Product B: $400,000
  • Product C: $280,000
  • Total actual sales for all products: $320,000 + $400,000 + $280,000 = $1,000,000


Compute the break-even point of Digital World Company based on the actual sales. Explain the reason of difference (if any) between the break-even point computed on the basis of budgeted sales and the break-even point computed on the basis of actual sales data.


Before computing break-even point based on the actual sales, we need to prepare an income statement based on the actual sales.

Actual break-even point = Fixed expenses/CM ratio
= $447,200/0.43
= $1,040,000

The reason of difference in break-even point in dollar sales:

The difference in break-even point represents the shift in sales mix. A shift in sales mix from the products generating high contribution margin to the products generating low contribution margin decreased the overall contribution margin ratio of the company from 52% to 43% and hence increased the dollar sales required to break-even from $860,000 to $1,040,000.

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