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CVP Analysis - Multi-Product

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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Rikki Mae Teofisto
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1K views1 page

CVP Analysis - Multi-Product

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.

Uploaded by

Rikki Mae Teofisto
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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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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