Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 35

Multiproduct CVP Analysis

Mission Foods produces two flavors of tacos, chicken and fish, with the following characteristics:

	?Chicken	?Fish
Selling price per taco	$3.00	$ 4.50
Variable cost per taco	$1.50	$ 2.25
Expected sales (tacos)	200,000	300,000

Required

The total fixed costs for the company are $117,000.

a. What is the anticipated level of profits for the expected sales volumes?

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b. Assuming that the product mix would be 40 percent chicken and 60 percent fish at the breakeven point, compute the break-even volume.

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c. If the product sales mix were to change to four chicken tacos for each fish taco, what would be the new break-even volume?

Step 1 of 12

Cost-volume-profit-analysis (CVP):

Cost-volume-profit-analysis is a financial modeling method that talks about break-even point basically. Thus in this modeling, we are more concerned with the zero profit-zero loss scenario where the profit equation is equated to zero.

In this context, the main focus is on achieving the break-even sales and the contribution margin. The sales volume, selling price and variable cost per unit are the main entities.

This gives rise to the contribution margin which offsets the fixed cost of the company. Here the actual sales volume, production capacity and the overheads leading to fixed cost are the key parameters of the model.