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In multi-product CVP (example 6) you calculate Breakeven revenue by taking fixed cost divided by the C/S ratio of all the products (like this):
Breakeven revenue = 8000 / 0.303 = $26402
But how do we calculate the breakeven units of each product using total breakeven revenue of $26402?
We know the budgeted revenue is $136,800 of which $24,000 is from C.
Since the breakeven revenue is $26,402, and the mix is staying the same, the revenue will from C will have to be 24,000/136,800 x $26,402 = $4,632. The revenue per unit is $5 and therefore the number of units of C is 4,632/5 = 927 units.
It is the same workings for the other two.
Using the same example 6 if we assume that we have a total fixed cost of $36000 in non-constant production mix then we calculate breakeven units like this:
Product P (12000 units x $2.65)——= $31800
Product C (3360 units x $1.25)——–= $4200
Total contribution—————————$36000
Total fixed cost—————————–(36000)
Breakeven—————————————0Breakeven units are 12000 for Product P and 3360 for Product C.
OR we can do it this way too…
Breakeven revenue of each product
Product P = (12000 x $7) = $84000
Product C = (3360 x $5) = $16800Breakeven units of each product
Product P = ($84000 / $7) = 12000
Product C = ($16800 / $5) = 3360Please tell me my calculations and BOTH ways are correct?
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