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ACCA Applied Skills · Performance Management · Cost-volume-profit analysis (CVP)

A company makes two products, X and Y, sold in a constant mix. Product X has a C/S ratio of 40% and Product Y has 20%. Sales are $200,000 of X and $300,000 of Y per period; fixed costs are $140,000. On a multi-product profit-volume chart, what is the break-even sales revenue assuming the mix remains constant?

Break-even revenue is $500,000. The weighted average C/S ratio is 28% (contribution of $140,000 on sales of $500,000), and fixed costs of $140,000 divided by 0.28 gives $500,000 at the constant mix.

  1. A$350,000Correct
  2. B$466,667
  3. C$500,000
  4. D$280,000

Explanation

Contribution = 200,000 x 40% + 300,000 x 20% = 80,000 + 60,000 = 140,000 on sales of 500,000, so the average C/S ratio is 28%. Break-even = 140,000 / 0.28 = $500,000. Check: contribution at 500,000 is 140,000, equal to fixed costs, so the correct answer is $500,000, not $350,000.

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