Cpv Milkshake Stand

Cost – Volume – Profit Analysis

QUESTION 1

Break-even Point for Businesses Selling Multiple Products

Businesses selling multiple products must reduce all the selling prices down to one selling price. Similarly, businesses selling multiple products must reduce all the product costs (variable costs) for each product down to one product cost (variable cost). This is accomplished by calculating a weighted average selling price and a weighted average product cost (variable cost).  

These Calculations were made using 3 assumptions. They are as follows:

1. The selling price for each milkshake (Small and Large)

2. The variable costs for each milkshake ($2.88 Small $3.82 Large)

3. The sales percentage (%) forecast for each milkshake. The sales percentage forecast is simply the percentage of total sales Tropical Dreams Milkshake Bar anticipates for each size of milkshake. (40% of customers will purchase the Small milkshake while 60% of customers are expected to purchase the Large milkshake. The three above items can be organized as follows.

• The weighted average selling price considers all the selling prices of all the products a company sells and reduces them (all selling prices) into one single selling price.

Weighted average selling price:

Small = $7.00 * 40% (sales volume) =$2 .80

Add

Large = $10.00* 60% (Sales Volume) = $6.00

$2.80 (Small) + $6.00(Large)= $8.80 Weighted Average Product Cost

• The weighted average product cost (variable costs) considers all the costs of all the products a company sells and reduces them (all product costs) into one single product cost. Note: 10% of gross sales must be given to resort where the shack is located. Add line item Owners Capital to Variable Costs per Unit (Small .70 and Large 1.00).

Weighted average product cost (Variable Cost):

Small = $2.18 + .70 (10% to resort) = $2.88

Small = 2.88 * 40% (sales volume) = 1.152...