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Multi-product Cost Volume Profit analysis – ACCA Performance Management (PM)

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    • It depends whether the mix of the products is to remain the same or whether they can produce the one with the highest CS ration first (as explained in the lectures).

      Once we know the breakeven revenue from each product then dividing by the selling price gives the number of units.

  3. Hello,

    Just want to confirm, initially we get breakeven revenue at 26,402

    At the end of the lecture, why suddenly our breakeven revenue change to 23,400? When we want to see if it is close to new breakeven which is 21,108.

    Is it a typo in the lecture of did i missed any calculation?

    Thanks!

    • I think the misunderstanding is due to a language barrier, as per the narrative, we are to assume that sales & profits are cumulative therefore we would first sell Product P until we reached the breakeven revenue mark. We would therefore no longer need to factor in the C/S ratio of the other products.

      Which is why the C/S ratio used is 0.379 i.e. (31,800/84,000) and how we worked out that the breakeven revenue would be 21,108 (i.e. 8000/0.379).

      As we did not assume on the basis of cumulative figures, we had previously used an average C/S ratio in part (c) i.e it was assumed the company would sell a mix of Products P, C, and V until we reached breakeven revenue which is why the revenue figures differ from part (c) and part (f)

    • The CS ratio is 30%. Given that the contribution is the selling price less the variable costs, then for every $100 the contribution is $30 and the variable costs must be $70, or 70% of the selling price.

      If the variable cost is $28 and this is 70% of the sales, it means that the selling price must be 28/70%.

  5. Hello Sir,
    In the above question we after calculating breakeven revenue = total fixed costs/ Weighted average CS ratio
    which gives the answer $26,402.
    my doubt is if after finding breakeven revenue we are asked to find breakeven units for each of the three products.
    How do we do it?

  7. Respected Sir,
    in multi-product cvp analysis, when we’re trying to figure out the effects of selling products in preference to each other, we rank them according to their C/S ratios and not the contributions they’ve generated. Why is that the case?
    For example, if there are three products
    X whose contribution p.u. = $8 , C/S ratio =0.45,
    Y’s cont. p.u.=$6 , C/S ratio=0.5 and
    Z whose cont.p.u,=$3 , C/S ratio=0.33
    why shoudn’t we produce X first? It generates the highest contribution per unit, so selling it first should make us reach the breakeven point even quicker and the if we ramp up its sales then we’ll be more profitable.
    But as the rule goes, we should produce Y first then X because it has the highest C/S ratio.

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