Me ole cock spaniel plc. makes 3 products, details as follows:
Apples (£) Pears (£) Cockneys (£)
Selling price 60 80 40
Variable cost (20) (30) (20)
Contribution 40 50 20
Sales (units) 2,000 3,000 5,000
Fixed overhead for the year £800,000
Calculate the break-even level of sales?
Solution:
Average contribution per unit
2,000 x £40 = 80,000
3,000 x £50 = 150,000
5,000 x £20 = 100,000
Total 330,000/ 10,000 units = £33 average contribution per unit
OR 2/10 x £40 + 3/10 x £50 + 5/10 x £20 = £33 average contribution per unit
£800,000 / £33 per unit = 24,242 units sold (in the mix 2:3:5)
Break-even revenue
Apples 2/10 x 24,242 units sold = 4,848 x £60 = 290,880
Pears 3/10 x 24,242 units sold = 7,273 x £80 = 581,840
Cockneys 5/10 x 24,242 units sold = 12,121 x £40 = 484,840
24,242 1,357,560
Alternative method would be to use the average C/S ratio
Apples 0.666 x 0.2 = 0.133
Pears 0.625 x 0.3 = 0.1875
Cockneys 0.500 x 0.5 = 0.25
0.5705
£800,000/0.5705 = £1,402,278 (close enough to £1,357,560 above!!!)