assumed.
(2)
The P/V chart can show information about each product individually.
(3)
It can be done using three approaches
Output in $ sales and a constant product mix
Products in sequence
Output in terms of % of forecast sales and a constant product mix
Example 10:
Assume that budgeted sales are 2,000 units of X, 4,000 units of Y and 3,000 units of Z. A
breakeven chart would make the assumption that output and sales of X, Y and Z are in the
proportions 2,000: 4,000: 3,000 at all levels of activity, in other words that the sales mix is
'fixed' in these proportions.
Sales price per unit of x = $8 y = $6 z = $6
Variable cost per unit of x = $3 y=$4 z =$5
Fixed cost of $10,000
REQUIRED
Prepare the breakeven chart in three different approaches
Part 8: Multiproduct P/V charts
(1)
The same information could be shown on a P/V chart, as follows.
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IPK COLLEGE
1664, JALAN KULIM, 14202 BUKIT MERTAJAM, PENANG
TEL : 0125203212 / 0125113212 / 045512588
Subject: Financial Management
(DFM1)
Prepared by Chester Chen
Email : [email protected]
An addition to the chart would
show further information about the contribution earned by
each product individually
, so that their performance and profitability can be compared.
Contribution
$
Sales
$
C/S ratio
%
Product X
Product Y
Product Z
10,000
8,000
3,000
16,000
24,000
18,000
62.50
33.33
16.67
By convention, the
products are shown individually
on a P/V chart from
left to right
, in
order of the size of their C/S ratio
. In this example, product X will be plotted first, then
product Y and finally product Z. A
dotted line
is used to show the
cumulative profit/loss and
the cumulative sales
as each product's sales and contribution in turn are added to the sales mix.
Product
Cumulative sales
Cumulative profit
$
$
X
16,000

X and Y
40,000
8,000
X, Y and Z
58,000
11,000
You will see on the graph which follows that these three pairs of data are used to plot the dotted
line, to indicate the contribution from each product.
The solid line
which joins the two ends of
this dotted line
indicates the average profit
which will be earned from sales of the three
products in this mix.
___________________________________________________________________________________________________________________
Page
9
of
12
IPK COLLEGE
1664, JALAN KULIM, 14202 BUKIT MERTAJAM, PENANG
TEL : 0125203212 / 0125113212 / 045512588
Subject: Financial Management
(DFM1)
Prepared by Chester Chen
Email : [email protected]
The diagram
highlights
the following points.
(a)
Since X is the most profitable in terms of C/S ratio, it might be worth considering an
increase in the sales of X, even if there is a consequent fall in the sales of Z.
(b)
Alternatively, the pricing structure of the products should be reviewed and a decision
made as to whether the price of product Z should be raised so as to increase its C/S ratio
(although an increase is likely to result in some fall in sales volume).
The
multiproduct P/V chart
therefore helps to
identify
the following.
(a)
The overall company breakeven point.
(b)
Which products should be expanded in output and which, if any, should be discontinued.
(c)
What effect changes in selling price and sales volume will have on the company's
breakeven point and profit.
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___________________________________________________________________________________________________________________
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10
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IPK COLLEGE
1664, JALAN KULIM, 14202 BUKIT MERTAJAM, PENANG
TEL : 0125203212 / 0125113212 / 045512588
Subject: Financial Management
(DFM1)
Prepared by Chester Chen
Email : [email protected]
Example 11:
A company sells three products, X, Y and Z. Cost and sales data for one period are as follows.
 Spring '17
 JANE KDAL