1. Multiple Product Cost-Volume-Profit Analysis
Chapter 8
Managerial Accounting
Multiple Product Cost-Volume-Profit Analysis
Prepared by Diane Tanner
University of North Florida
Copyright ©2015. University of North Florida. All rights reserved.

2. Sales Mix What is sales mix?2
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
Two ways to express
Unit sales mix
2000 : 8000
1 : 4
Revenue sales mix
4000 : 6000
2 : 3
Buckets
Pails
Units
2,000
8,000
Sales
$4,000
$6,000
Expenses
$1,600
$3,500
Profit
$2,400
$2,500

3. Pushing Products to Customers
Goal is to generate the largest profit
Push the product with the higher contribution margin per unit
If customers prefer to buy one product and are indifferent to their cost
Push the product with the higher contribution margin ratio (i.e., the highest profit out of each sales dollar)
If customers prefer to spend a fixed sum of money and are indifferent to products they buy

4. Pushing Products to Customers4
ABC Company provides the following product sales analysis reflecting sales of 500 of product A and 1,000 of product B for 2018:
Product A
Product B 
Total 
Sales
$25,000
100%
$ 30,000
$ 55,000
100.00%
Variable costs
15,000
60%
13,500
45%
28,500
51.82%
Contribution margin
$ 10,000
40%
$ 16,500
55%
26,500
48.18%
Fixed costs
17,000
Profit
$ 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)

5. Pushing Products to Customers5
ABC Company provides the following product sales analysis reflecting sales of 500 of product A and 1,000 of product B for 2018:
Product A
Product B 
Total 
Sales
$25,000
100%
$ 30,000
$ 55,000
100.00%
Variable costs
15,000
60%
13,500
45%
28,500
51.82%
Contribution margin
$ 10,000
40%
$ 16,500
55%
26,500
48.18%
Fixed costs
17,000
Profit
$ 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%)

6. Two Assumptions of Multi-Product CVP Analysis6
Two Assumptions of Multi-Product CVP Analysis
Sales Mix is Constant 1
SUVs
Sedan 2
No Inventories are Held
Units Produced
Units Sold =

7. Multiproduct Analysis7
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

8. Determining BEP with Multiple Products8
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

9. Contribution Margin Per Unit Approach9
How many units of each product must be sold to break even?
Product A
Product B 
Total 
500
1,000
1,500
Sales
$25,000
100%
$ 30,000
$ 55,000
100.00%
Variable costs
15,000
60%
13,500
45%
28,500
51.82%
Contribution margin
$ 10,000
40%
$ 16,500
55%
26,500
48.18%
Fixed costs
17,000
Profit
$ 9,500
Weighted-average CM per unit = $26,500/1,500 = $ per unit
Unit sales mix = 500 : 1,000  1 : 2
BEP in units = SPx – VCx – TFC = Profit
CMx - TFC = Profit
x – 17,000 = 0
X = total units
A: 1/3 × = 321 units
B: 2/3 × = 642 units

10. Contribution Margin Ratio Approach10
How much sales revenue of each product must be sold to break even?
Product A
Product B 
Total 
500
1,000
1,500
Sales
$25,000
100%
$ 30,000
$ 55,000
100.00%
Variable costs
15,000
60%
13,500
45%
28,500
51.82%
Contribution margin
$ 10,000
40%
$ 16,500
55%
26,500
48.18%
Fixed costs
17,000
Profit
$ 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, = $16,038.34
B: 6/11 × $35, = $19,246.01

11. The End