# Exercise-2 (Break-even analysis of a multiproduct company)

PQR company sells two products – product A and product B. The total fixed expenses of the company are $1,197,000. The monthly data of PQR is as follows:

**Product A:**

- Sales: $1,400,000
- Contribution margin ratio: 60%

**Product B:**

- Sales: $600,000
- Contribution margin ratio: 70%

**Required:**

- Prepare contribution margin income statement for the company.
- Calculate break-even point in dollars.

## Solution:

### (1) Income statement:

### (2) Computation of break-even point:

The PQR company sells two products. Its break-even point can be easily computed by dividing the total fixed expenses by overall contribution margin ratio (CM ratio).

Fixed expenses/Overall CM ratio

= 1,197,000/.63

= $1,900,000

7 Comments on Exercise-2 (Break-even analysis of a multiproduct company)Can I have the full calculation of 37%

@Phillipa

(740,000/2000,000)*100 = 37% or 0.37

the break even point $1,900,000 can not cover the fixed expenses after deducted by variable expenses $740,000, why?

variable costs won’t stay equal to 740000 if the sales changed since they are variable , first we were selling 2000000 dollars and we had 740000 dollars variable costs for this level of sales , but when we break-even we sell only 1900 000 so automatically variable costs will decrease . Hope i helped 🙂

It should cover the variable expenses at break-even point

BEP = VE + FE

1,900,000 = 703,000* + 1,197,000

*1,900,000(.37)

Why are the sales doubled in the income statement?

From $700,0000 in the introduction

To $1,400,000 in the income statement

And the same for product B

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