Answer
A company with multiple products can compute its breakeven point by aggregating the contribution margins of all its products. The breakeven point is reached when the total contribution margin covers the company's fixed costs. This can be calculated using the formula:
Breakeven Point (in units or dollars) = Fixed Costs $\div$ Weighted Average Contribution Margin
The weighted average contribution margin is computed by taking the weighted average of the contribution margin for each product, considering their sales mix. This approach accounts for the varying profitability of different products and provides a more accurate breakeven point for the company as a whole.
Work Step by Step
A company with multiple products can compute its breakeven point by aggregating the contribution margins of all its products. The breakeven point is reached when the total contribution margin covers the company's fixed costs. This can be calculated using the formula:
Breakeven Point (in units or dollars) = Fixed Costs $\div$ Weighted Average Contribution Margin
The weighted average contribution margin is computed by taking the weighted average of the contribution margin for each product, considering their sales mix. This approach accounts for the varying profitability of different products and provides a more accurate breakeven point for the company as a whole.
