1 / 11

Prepared by Diane Tanner University of North Florida

Chapter 8. Multiple Product Cost-Volume-Profit Analysis . Prepared by Diane Tanner University of North Florida. What is sales mix? The relative proportion in which a company’s products are sold

trina
Download Presentation

Prepared by Diane Tanner University of North Florida

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 8 Multiple Product Cost-Volume-Profit Analysis Prepared by Diane Tanner University of North Florida

  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 Sales Mix 2 • Revenue sales mix • $4000 : $6000 • 2 : 3

  3. Pushing Products to Customers 3 Goal is to generate the largest profit If customers prefer to buy one product and do not care which one they buy Push the product with the higher contribution margin per unit 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 do not care which products they buy

  4. Which product will you ‘push’ to your customers? Pushing Products to Customers 4 4 ABC Company provides the following product sales analysis reflecting sales of 500 of product A and 1,000 of product B. for 2009: Assume customers will buy one item only. Push the product with the highest CM per unit—product A (CM = $20 per item)

  5. Which product will you ‘push’ to your customers? Pushing Products to Customers 5 5 ABC Company provides the following product sales analysis reflecting sales of 500 of product A and 1,000 of product B. for 2009: Assume customers will spend exactly $2,000. Push the product with the highest CM ratio—product B A (CM = 55%)

  6. 6 UnitsProduced UnitsSold = Two Assumptions of Multi Product CVP Analysis 1 Sales Mix is Constant SUVs Sedan 2 No Inventories are Held

  7. Multiproduct Analysis 7 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 Products 8 • 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 sold for multiple products, use • Weighted average CM ratio, and • Revenue sales mix

  9. Contribution Margin Per Unit Approach 9 How many units of each product must be sold to break even? Weighted-average CM per unit = $26,500/1,500 units = $17.6657 per unit BEP in units = CM X - FC = Profit 17.667x– 17,000 = 0 X = 962.25 total units A: 500/1,500 × 962.25 = 321 units B: 1,000/1,500 × 962.25 = 642 units

  10. Contribution Margin Ratio Approach 10 How much sales revenue of each product must be sold to break even? BEP in units = CMR X - FC = Profit 0.4818x– 17,000 = 0 X = $35,284 A: $25,000/$55,000 × $35,284 = $16,038 B: $30,000/$55,000 × $35,284 = $19,246

  11. The End

More Related