Calculate break even point for multiple products

  • finance

When running a business is important to know what is your break even point so you can set your sales target correctly. There are fixed and variables costs, break even point is the level where the revenue equals the total cost, so the business does not make or lose money. To calculate this there are various methods but we will use one which will cover multiple products.

First we have to know sales price of each product and the variable cost so we can calculate the contribution margin of each unit. Let's say that we offer three major products and the percentage of sales we expect from each is

Product 1: 20 %
Product 2: 50 %
Product 3: 30 %

  Product 1 Product 2 Product 3
       price per Unit 17 $ 34 $ 50 $
  -   variable cost per unit   2 $   4 $   6 $
 =   contribution margin per unit 15 $ 30 $ 44 $
 x    sales mix percentage 20% 50% 30%

 

Weighted Average Contribution Margin = 31.2 $

 

Total fixed costs include bills like office rent, utilities bills in general all the costs that will have to be paid even the business has no revenue. Let's take a rough estimate of 3000 $.

Break Even Point = Fixed Costs / Weighted Average Contribution Margin

we have to sell approximately 96 unit in total or 19 units from product 1, 40 units from product 2 and from product 3 29 units

So we now the unit we have to sell for not have loses

 

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