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    CVP Analysis - Multi-Product

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    Rikki Mae Teofisto
    Mikaela Inc. sells three sizes of umbrellas - small, medium, and large. It has annual fixed costs of 19.52 million pesos. Small and large umbrellas make up 20% of sales each, while medium umbrellas make up the remaining 60% of sales. To break even, Mikaela needs to sell 32,000 umbrellas total, which is 19,200 medium umbrellas. If demand for large umbrellas increases, the break-even point will decrease because large umbrellas have a higher contribution margin.

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    CVP Analysis - Multi-Product

    Uploaded by

    Rikki Mae Teofisto
    958 views1 page
    Mikaela Inc. sells three sizes of umbrellas - small, medium, and large. It has annual fixed costs of 19.52 million pesos. Small and large umbrellas make up 20% of sales each, while medium umbrellas make up the remaining 60% of sales. To break even, Mikaela needs to sell 32,000 umbrellas total, which is 19,200 medium umbrellas. If demand for large umbrellas increases, the break-even point will decrease because large umbrellas have a higher contribution margin.

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    Mikaela Inc. sells three sizes of umbrellas - small, medium, and large. It has annual fixed costs of 19.52 million pesos. Small and large umbrellas make up 20% of sales each, while medium umbrellas make up the remaining 60% of sales. To break even, Mikaela needs to sell 32,000 umbrellas total, which is 19,200 medium umbrellas. If demand for large umbrellas increases, the break-even point will decrease because large umbrellas have a higher contribution margin.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    958 views1 page

    CVP Analysis - Multi-Product

    Uploaded by

    Rikki Mae Teofisto
    Mikaela Inc. sells three sizes of umbrellas - small, medium, and large. It has annual fixed costs of 19.52 million pesos. Small and large umbrellas make up 20% of sales each, while medium umbrellas make up the remaining 60% of sales. To break even, Mikaela needs to sell 32,000 umbrellas total, which is 19,200 medium umbrellas. If demand for large umbrellas increases, the break-even point will decrease because large umbrellas have a higher contribution margin.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    CVP Analysis - Multi-Product

    Mikaela Inc. sells three sizes of umbrellas: small, medium, and large. The company has annual
    fixed costs of P19,520,000. For the past several years, 20% of Hugo's sales have been the small
    and large umbrellas with the remaining 60% being the medium size. Mikaela does not expect
    this to change in the upcoming year.
    The following information is also available for each of the umbrellas:

    Small   Medium   Large

    Sales price per unit P400   P700   P1,750

    Variable costs per unit 150   200   450

    Required:

    Small Medium Large


    Sales per Unit ₱ 400.00 ₱ 700.00 ₱ 1,750.00
    Less: Variable Costs per Unit ₱ 150.00 ₱ 200.00 ₱ 450.00
    Margin per Unit ₱ 250.00 ₱ 500.00 ₱ 1,300.00
    Unit Mix 20% 60% 20%
    Weighted Average Contribution Margin ₱ 50.00 ₱ 300.00 ₱ 260.00

    Total Weighted Average Contribution Margin: ₱ 610.00

    How many total umbrellas does the company need to produce and sell in order to break
    A.
    even? (3 pts.)

    Break-Even (units) = Fixed Cost ÷ Weighted Average Contribution Margin


    = ₱ 19,520,000.00 ÷ ₱ 610
    = 32,000 units

    B. How many medium umbrellas need to be sold in order to break even? (3 pts.)

    Break-Even (Units) = Total Break Even (units) × 60%


    = 32,000 units × 60%
    = 19,200 units
     

    If Mikaela experiences a higher demand of large umbrellas than it anticipated, will the
    C.
    break-even point increase, decrease, or stay the same? Why? (4 pts.)

    If Mikaela experiences a higher demand of large umbrellas than it anticipated, break-


    even point will decrease since the relationship between sales mix and break-even point is
    interconnected. If the sales mix changes, the break-even point will also change. The break-even
    point will decrease because the total weighted average contribution margin will increase as the
    large umbrellas have a higher contribution margin per unit. As the number of units sold
    increases, the percentage of sales will increase as well. In addition to this, the more products
    involved in the sales mix, the more sensitive the calculation becomes changes in sales mix.

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