In real life, companies produce a range of products, not just one kind as was assumed in the example above. Different products will have different selling prices, variable costs per unit and, as a result, different contribution margins and contribution margin ratios.

Can CVP analysis deal with this complication? The answer is 'Yes'. You just need to obtain some data about the product mix.

First, you need to know proportion in which each of the products is sold. Then you can calculate contribution margin for each product. After that you define weighted average contribution margin, which is used in the determination of break-even point or the amount of sales required to gain desired income (profit).

Let's illustrate it on Friends Corporation example. Assume, the company produces 3 types of valves: for trucks, cars and motor-bikes. The following data is available:

To calculate weighted average contribution margin you need to "weight" the contribution margin per unit of these three products and present it as "three-in-one":

Weighted Average Contribution Margin per Unit = 30% x $3 + 45% x $2 + 25% x $2 = $2.3

Now break-even point may be calculated.

The calculation of breakeven point in a multi-product company follows the same logic as in a single product company. While the numerator will be the same fixed costs, the denominator now will be weighted average contribution margin. The modified formula is as follows:

For our example break-even point (in units) approximates 4,348 units ($10,000 ÷ $2.3). These 4,348 units are then split in accordance with the proportion defined in row 1 in the above table:

Friends Corporation will break-even (i.e., will get neither profit nor loss) if it sells the above volumes of valves at the given proportion 30%:45%:25%.

However, it is important to remember that each proportion of product mix will have different break-even points. For example, if market situation changes and Friends Corporation switches to larger production of more expensive truck valves with proportion 45%:30%:25%, break-even point will change. In this case, the weighted average contribution margin per unit will be $2.45 and zero profit will be earned at total level of sales of around 4,082 valves (compared to 4,348 units).

The change occurred due to the fact that contribution ratio per unit of truck valves is the highest ($3 for truck vales versus $2 per car or motor-bike valve). Thus, more income can be generated by producing and selling truck valves and break-even point is reached faster (with less total items produced and sold).

Break-even point for multiple product production can be calculated in dollars as well. Here also, the numerator is the same fixed costs. The denominator now will be weighted average contribution margin ratio. The modified formula is as follows:

Based on figures from the earlier table with information about three valve types, the break-even point will be reached at:

Therefore, to achieve the break-even point, Friends Corporation has to sell valves for a total of $36,364 (valid only when proportion of sales is 30%:45%:25%).

Let's check the results: ∑Sales Units x Contribution - Fixed Costs, should approximately equal zero (rounding difference may arise): $3 x 1,304 + $2 x 1,957 + $2 x 1,087 - $10,000 = 0.