 Hello and welcome to the session in which we compute the break-even for a multi-product scenario. In the prior session we compute the break-even point, the dollar amount by taking fixed cost, dividing fixed cost by the contribution margin ratio. Now you need to know how to compute the contribution margin ratio. The contribution margin ratio can be computed by first taking sales minus variable expenses, which will give us the contribution margin. So if we have $10 minus $6 in variable expenses will give us a contribution margin of 4. Then to compute the contribution margin ratio, we take the contribution margin, divide it by sales, which is $4 divided by $10. It tells us the contribution margin ratio is 40%. So that was pretty straightforward. Finding the contribution margin ratio, the denominator, we take fixed cost divided by the contribution margin will give us the break-even in terms of dollar sales. That was easy when we had only one product. What happens if we have a multi-product? This is what we're going to be discussing in this session. We have to follow basically the same formula, but a variation of this formula. We still need to compute the contribution margin ratio. We still need our fixed cost, but we need to allocate this break-even point to the various product. This topic is covered in managerial accounting, cost accounting, as well as the CPA and the CMA exam. Whether you are an accounting student or studying for the CPA exam, I strongly suggest you take a look at my website, farhatlectures.com. I don't replace your CPA review course. I'm a useful addition. I provide you alternative resources, alternative explanation. Your risk is one month of subscription. Your potential gain is passing the exam. And if not for anything, take a look at my website to find out how well or not well your university doing on the CPA exam. This is a list of my course catalog where I have many courses. My CPA supplemental resources are aligned with your Becker, Roger, Gleam and Wiley. So it's very easy to follow back and forth. And I do give you access to all the AICPA previously released questions. Connect with me on LinkedIn. If you haven't done so, take a look at my LinkedIn recommendation. Like this recording, share it with other. Connect with me on Instagram, Facebook, Twitter and Reddit. So how do we compute the break-even point for a multi-product? Well, let's take a look at an example to illustrate this point. We're going to be using two products. ABC Total Sales Revenue Desktop comprised 45%. And the tablet comprised the remaining 55%. So we know from past history that we sell two products. Now we could be selling more than two. It doesn't really matter. The concept will be the same. But the point is I'm using only two products to simplify the example. So let's take a look at our sales for each one. Sales, a desktop, our total sales is 250,000. The tablet, 300,000. Together the total sales is 550. Variable expenses for the desktop is 150. Variable expenses for the tablet, 135. And the total variable expenses is 285. Contribution margin is obviously taken sales minus variable expenses. And here's the contribution margin ratio, which is 100 divided by 250. 165 divided by 300 equal to 55. And this is the total contribution margin. The fixed expenses for the company are 150,000. And net operating income is 95,000, which is the contribution margin minus the fixed expenses. So the sales mix, again, we set 45 is to the desktop and the tablet comprised 55%, 55%. Now we need to know what is the breakeven point? Well, here's what we're going to have to do. Basically using the same concept that we learned before, which is fixed cost divided by the contribution margin ratio. But we're going to use the contribution margin ratio for the whole company, which is 48.2%. So fixed cost, 170,000 divided by the contribution margin ratio for the whole company, 48.2%. So total sales will have to be 352,697. So this is what we find is the total sales for the whole company. Now we have to find out what should be the total sales for each product, which is we have the desktop and we have the tablets. Well, remember, the desktop represent 45%. Therefore, if we take 45% times, so we're going to take 300, 352,000. Let's do it here. So we're going to multiply this number by 45%. And let's do that. Let me pull my calculator and be able to do that. So 300, let me keep the calculator here. 352,000. 352,697 times 0.45. That's the sales ratio. That's 158,714, rounded 714. We'll do the same thing with the tablet ratio. The tablet represent 55% of our sales and this should give us 193,983. Now we know how much sales we should generate for the desktop, 158,714 from the tablet, 193,983. The total sales 352. Well, variable expenses, we're going to take sales times 60%. It's going to give us variable expenses of 95,228. We're going to take the sales times 45%. That's the variable expense ratio. Then we could compute the contribution margin for the desktop, the contribution margin for the tablet. The total contribution margin for the whole company. Then what we do is we, what we have to do is now subtract fixed cost and what we're left with is $176, actually rounding error. So this is how we compute the breakeven point. Pretty straightforward. Again, the idea is coming from the original formula which is finding the dollar sales to breakeven, which is contribution margin, which is the fixed cost divided by the contribution margin ratio because you're looking for a sales dollar. You are not looking for a unit. Remember, if we want to find the fixed cost for one product per unit, we'll take fixed cost divided by the contribution margin per unit will give us Q quantity. We're not looking. This formula is not applicable here. What we're looking for is total dollar sales. From the dollar sales, we can allocate sales to asserting to the various product. Then if we want to find the breakeven per unit, per Q, we'll take this amount divided by sales and we find how many units of desktop we need to sell how many tablets. Just basically a quick review. At the end of this recording, I'm going to remind you whether you are an accounting student or a CPA candidate to strongly take a look at my website, farhatlectures.com. Again, I don't replace your CPA review course. I am a supplemental material. Invest in your career, invest in yourself. The CPA is worth it. Good luck and study hard.