Asked Mar 19, 2020

Alberta Company makes three types of products: Product A, Product B, and Product C. Each of the three products has a different contribution margin, and the proportions of the three products sold have remained steady over the years. How could the company compute a break-even point given this situation? Explain the whole process step by step.


Expert Answer

Step 1

Cost Volume Profit Analysis (CVP Analysis): This analysis is helpful in determining that how any type of change in cost determines company’s income.

Break-Even Sales (BES): Sales volume required to cover the fixed and variable costs and left out with neither profit nor loss is called break-even point of sales.

Contribution Margin: The process or theory which is used to judge the benefit given by each unit of the goods produced is called as contribution margin.

Contribution Margin Ratio: The contribution margin ratio shows the amount of difference in the actual sales value and the variable expenses in percentage. This margin indicates that percentage which is available for sale above the fixed costs and the profit.

Break-Even Point: (BEP): It is the point of sales at which entity neither earns a profit nor suffers a loss. It can also be said that the point of sales at which sales value of the entity recovers the entire cost of fixed and variable nature is called break-even point.

Step 2

Step 1:

 Calculate the percentage of sales or sales proportion of individual products in the total sales mix.

Step 2:

 Calculate the weighted average selling price which can be computed by the following formula -

Weighted average selling price = (Selling price of product A × Sales % of product A) + (Selling price of product B × Sales % of product B) + (Selling price of product C × Sales % ...

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