Chapter 8
Managerial Accounting
Multiple Product CostVolume-Profit Analysis
Prepared by Diane Tanner
University of North Florida
Sales Mix
 What is sales mix?
 The relative proportion in which a company’s
products are sold
 Based on the premise that different products
have different selling prices, cost structures,
and contribution margins
Buckets
Pails
Units
2,000
8,000
Sales
$4,000
$6,000
Expenses
$1,600
$3,500
Profit
$2,400
$2,500
Two ways to express
• Unit sales mix
2000 : 8000
1:4
• Revenue sales mix
4000 : 6000
2:3
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Pushing Products to Customers
Goal is to generate the largest profit
If customers prefer to buy
one product and are
indifferent to their cost
Push the product with
the higher contribution
margin per unit
If customers prefer to
spend a fixed sum of
money and are indifferent
to products they buy
Push the product with
the higher contribution
margin ratio (i.e., the
highest profit out of
each sales dollar)
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Pushing Products to Customers
4
ABC Company provides the following product sales analysis
reflecting sales of 500 of product A and 1,000 of product B for 2018:
Sales
Variable costs
Contribution margin
Fixed costs
Profit
Product A
Product B
Total
$25,000 100% $ 30,000 100% $ 55,000 100.00%
15,000 60%
13,500 45%
28,500 51.82%
$ 10,000 40% $ 16,500 55%
26,500 48.18%
17,000
$ 9,500
Assume customers will buy only one item.
Which product will you ‘push’ to your customers?
A = $10,000/500 = $20.00
B = $16,500/1,000 = $16.50
Push the product with the highest CM per unit—Product A
(CM/unit= $20 per item)
Pushing Products to Customers
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ABC Company provides the following product sales analysis
reflecting sales of 500 of product A and 1,000 of product B for 2018:
Sales
Variable costs
Contribution margin
Fixed costs
Profit
Product A
Product B
Total
$25,000 100% $ 30,000 100% $ 55,000 100.00%
15,000 60%
13,500 45%
28,500 51.82%
$ 10,000 40% $ 16,500 55%
26,500 48.18%
17,000
$ 9,500
Assume customers will spend exactly $2,000.
Which product will you ‘push’ to your customers?
A = 40% × $2,000 = $800
B = 55% × $2,000 = $1,100
Push the product with the highest CM ratio—
Product B (CM = 55%)
Two Assumptions of Multi-Product
CVP Analysis
1
2
Sales Mix is
Constant
SUVs
Sedan
No Inventories are Held
Units
Produced
=
Units
Sold
6
7
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
 A weighted average approach
 Calculates ‘dollars’ needed to break even
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Determining BEP with Multiple Products
 To determine the number of units to be sold for
multiple products, use
 Weighted average CM per unit, and
 Unit sales mix
 To determine the sales dollars to be generated
for multiple products, use
 Weighted average CM ratio, and
 Revenue sales mix
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Contribution Margin Per Unit Approach
How many units of each product must be sold to break
Product A
Product B
Total
even?
Sales
Variable costs
Contribution margin
Fixed costs
Profit
500
1,000
1,500
$25,000 100% $ 30,000 100% $ 55,000 100.00%
15,000 60%
13,500 45%
28,500 51.82%
$ 10,000 40% $ 16,500 55%
26,500 48.18%
17,000
$ 9,500
Weighted-average CM per unit = $26,500/1,500 = $17.6657 per unit
Unit sales mix = 500 : 1,000  1 : 2
BEP in units = SPx – VCx – TFC = Profit
CMx - TFC = Profit
17.6657x – 17,000 = 0
X = 962.31 total units
A: 1/3 × 962.31 = 321 units
B: 2/3 × 962.31 = 642 units
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Contribution Margin Ratio Approach
How much sales revenue of each product must be
sold to break even?
Sales
Variable costs
Contribution margin
Fixed costs
Profit
Product A
Product B
Total
500
1,000
1,500
$25,000 100% $ 30,000 100% $ 55,000 100.00%
15,000 60%
13,500 45%
28,500 51.82%
$ 10,000 40% $ 16,500 55%
26,500 48.18%
17,000
$ 9,500
Revenue sales mix = 25,000 : 30,000  5 : 6
BEP in units = CMRx- TFC = Profit
0.4818x – 17,000 = 0
X = $35,284.35
A: 5/11 × $35,284.35 = $16,038.34
B: 6/11 × $35,284.35 = $19,246.01
The End
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