The technique of calculating break-even point of a single product company has been disputed in the break-even suggest analysis article. In this article, i would describe the procedure the calculating break-even point of a multi product company. A multi-product company means a company that sells 2 or more products.

You are watching: If a business sells two products, it is not possible to estimate the break-even point.

The procedure of computer break-even suggest of a multi product agency is a tiny more complicated than the of a single product company.

Formula:

A multi product agency can compute its break-even allude using the adhering to formula:

For computer break-even allude of a company with 2 or an ext products, us must understand the sales portion of individual commodities in the total sales mix. This info is supplied in computer weighted typical selling price and weighted mean variable expenses.

In the over formula, the weighted mean selling price is cleared up as follows:

(Sale price that product A × Sales percent of product A) + (Sale price that product B × Sale percentage of product B) + (Sale price of product C × Sales percent of product C) + …….

and the weighted mean variable expenses are resolved as follows:

(Variable expenses of product A × Sales portion of product A) + (Variable expenses of product B × Variable expenses of product B) + (Variable prices of product C × Sales portion of product C) + …….

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When weighted typical variable costs per unit space subtracted native the weighted mean selling price per unit, we acquire weighted median contribution margin every unit. Therefore, the over formula can likewise be composed as follows:

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An example would be really helpful to recognize the whole procedure. Consider the following instance of a multi product company:


Example:

The Monster company manufactures three assets – product X, product Y and also product Z. The variable expenses and also sales price of all the products are provided below:

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The complete fixed costs of the company are $50,000 every month. For the coming moth. Monster expects the sale of three commodities in the following ratio:Product X: 20%;Product Y: 30%;Product Z: 50%

Required: Compute the break-even point of Monster firm in units and dollars because that the comes month.

Solution:

Monster agency sells 3 products and also is, therefore, a multi product company. That break-even point can be computed by using the over formula:

= $50,000 / $95* – $55**= $50,000 / $40= 1,250 units

*Weighted median selling price:= ($200 × 20%) + ($100 × 30%) + ($50 × 50%)= $40 + $30 + $25= $95

**Weighted average variable expenses:= ($100 × 20%) + ($75 × 30%) + ($25 × 50%)= $20 + 22.50 + 12.50= $55

The company will have to sell 1,250 systems to break-even. Now I would compute the variety of units of each product to be sold:

Product X (1,250 × 20%):250 unitsProduct Y (1,250 × 30%):375unitsProduct Z (1,250 × 50%):625unitsTotal:250 units+375 units+625 units= 1,250units

As the variety of units of each individual product to be sold have been computed, I can compute the break even point in dollars as follows:

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The break-even point of Monster agency is $118,750. It can be showed by prepare a contribution margin earnings statement together follows: