How might you handle the break-even analysis for multiple product lines? the approach to handling a break-even analysis depends on the number of products that the company offers. If the company produces a small number of products, the managers can use the weighted-average unit contribution margin for all of the items. For example, a company sells 2,000 pots and 1,000 frying pans. The sales percentage mix is 75% (3,000/4,000) for pots and 25%
(1,000/4,000) for frying pans. If the unit contribution is $20 for pots and $10 for frying pans, the weighted average unit contribution margin is $17.50 [($20 x .75) +
($10 x .25]. By dividing the fixed costs by the weighted-average unit contribution margins you can calculate the break-even sales. Assuming that the fixed costs were $87,500, the break-even point in units is 5000 ($87,500/$17.50). The company would have to sell 3,750 pots (5000 x .75) and 1,250 (5000 x .25) frying pans to break even.
On the other hand, this approach is not feasible when there are many products. Companies, such as 3M, Johnson & Johnson, Kellogg, and
General Mills have hundreds of products--it would be unreasonable to try to calculate the break-even point in units. In this case, the company can evaluate the break-even point by sales. The company can evaluate and compare the information at a department, business unit, or division level rather than at the product level. This information can help manager better understand the affect of the sales mix on the break-even point.