Chapter 8 CVP with Multiple Products

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ACG 2071 Chapter 8
CVP with Multiple Products
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Pushing Products to Customers
ABC Company plans to sell 500 of product A and
300 of product B.
Assume customers will buy one item only.

• Which product will you push to your customers?

Push the product with the highest CM per unit.
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Pushing Products to Customers
ABC Company plans to sell 500 of product A and
300 of product B.
Assume customers will spend exactly 200.

• Which product will you push to your customers?

Push the product with the highest CM percentage.
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Sales Mix

• What is it?
• The relative proportion in which a companys
  products are sold
• Different products have different selling prices,
  cost structures, and contribution margins

• Can be based on
• Units
• 2000 8000
• 1 4
• Revenue
• 4000 6000
• 2 3

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Assumptions of Multi Product CVP Analysis
Sales Mix is Constant
SUVs
Sedan
2 1
No Inventories Held
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Multiproduct Analysis

• Two approaches
• Contribution Margin Approach
• For similar products
• A weighted average approach
• Calculates units needed to breakeven
• Contribution Margin Ratio Approach
• For substantially different products
• Calculates dollars needed to break even

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Contribution Margin Approach Example
Weighted Average CM per unit 26,500 800

33.125 per unit
BEP in Units CM x - FC Profit
33.125x 17000 0 X 513.21 total units
A 500/800 513.21 321 units B 300/800
513.21 193 units
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Contribution Margin Approach Example
Weighted Average CM percentage 26,500 55,000

48.19
BEP in CM x - FC Profit
.481818 x 17000 0 X 35,283
A 25,000/55,000 35,283 16,038 B
30,000/55.000 35,283 19,245
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