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Sir, i had a doubt, that when it is asked that to find revenue at breakeven when there are 2 or more products, we divide the fixed cost with weighted average ratio, but in some sums, the fixed cost is divided be the contribution of the product which has the highest c/s ratio, and then those units are multiplied by that product’s selling price. Sir my doubt is how to recognise when to use either of the method.
Thank you in advance.
In multi-product CVP analysis, there are two methods to calculate the breakeven revenue.
The first method is to calculate the weighted average contribution to sales (C/S) ratio by dividing the total contribution across all products by the total sales revenue across all products. This weighted average C/S ratio is then used to divide the fixed costs and determine the breakeven revenue.
The second method is to identify the product with the highest C/S ratio and divide the fixed costs by the C/S ratio of that product. This gives the breakeven point in units for that specific product. The breakeven units are then multiplied by the selling price of that product to calculate the breakeven revenue.
The choice between these two methods depends on the specific information given in the question.
If the question provides the individual C/S ratios and sales mix for each product, it is appropriate to calculate the weighted average C/S ratio.
On the other hand , if the question only provides the C/S ratio for one product or does not provide the sales mix, it is more suitable to use the second method and calculate the breakeven revenue based on the product with the highest C/S ratio.
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