BEP Analysis in Multiproduct Situation

Single-Product BEP: Fortune Pharma Example

• Selling Price: ₹240 per case
• Variable Cost: ₹200 per case
• Contribution: ₹40 per case
• Fixed Cost: ₹20,00,000

Break-even Volume:

Break-even Quantity = Fixed Cost / Contribution per unit
                    = 20,00,000 / 40
                    = 50,000 cases

Simple computation since only one product is involved.

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Multi-Product Scenario

• Companies (e.g., supermarkets, electronics stores) offer multiple products or models.
• This confuses customers → drives sales (marketing tactic).
• But for management, new models increase cost and may reduce profitability.

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Concept of Sales-Mix Bag

1. Sales Mix: Planned ratio of different products sold.
2. Sales-Mix Bag: A bundle containing product units in that sales ratio.
3. Contribution per Bag: Total contribution from all units in the bag.

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Mobile Company Example (5 Models)

Models and Contribution per Unit:

Model	Contribution (₹/unit)
M-Launch	480
Ultima	2400
M-Professional	4000
Size Product	3500
Mixed Feature	3000

🔸 Sales Mix Ratio:

10 : 3 : 5 : 4 : 8

🔸 Contribution per Sales-Mix Bag:

= (10×480) + (3×2400) + (5×4000) + (4×3500) + (8×3000)
= ₹70,000

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Break-even Computation for Multi-Product

• Fixed Cost: ₹1400 million
• Contribution per Bag: ₹70,000

BEP in Bags:

Break-even Bags = 1400 million / 70,000
                = 20,000 bags

🔸 Units Needed at Break-even:

Low-end        = 20,000 × 10 = 2,00,000 units  
High-end       = 20,000 × 3  = 60,000 units  
Professional   = 20,000 × 5  = 1,00,000 units  
Size           = 20,000 × 4  = 80,000 units  
Mix-of-features= 20,000 × 8  = 1,60,000 units

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Profit Planning Using Sales-Mix Bags

• Target Profit: ₹2100 million
• Extra Bags Required = 2100 million / 70,000 = 30,000 bags

🔸 Total Sales-Mix Bags Required:

= 20,000 (BEP) + 30,000 (for profit)
= 50,000 bags

🔸 Units Needed for Target Profit:

Low-end        = 50,000 × 10 = 5,00,000 units  
High-end       = 50,000 × 3  = 1,50,000 units  
Professional   = 50,000 × 5  = 2,50,000 units  
Size           = 50,000 × 4  = 2,00,000 units  
Mix-of-features= 50,000 × 8  = 4,00,000 units

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Changing Sales Mix & Its Impact

• If the company cannot meet a part of the mix (e.g., 2,50,000 Business units):
  • A new sales mix must be determined.
  • All computations must be repeated.
• Launch of a new product:
  • May increase fixed costs and change BEP.
  • Affects profit planning.

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Strategic Insight

• New product launches are often driven by Marketing & R&D teams.
• If cost implications are ignored:
  • Company may experience reduced profitability despite higher sales.

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