Asked by Dominika Roybal on May 01, 2024
Verified
Nesto sells two products: X and Y. The contribution margin ratio for X is 40 per cent and for Y is 50 per cent. If the proportion of sales of X decreases, what will happen to the weighted average contribution margin?
A) Increase
B) Decrease
C) Remain the same
D) Changes in sales volume do not affect weighted average contribution margin
Contribution Margin Ratio
The ratio of contribution margin (sales minus variable costs) to sales revenue, indicating the percentage of each sales dollar remaining after variable costs.
Weighted Average
A calculation that takes into account the varying degrees of importance of the numbers in a dataset, often used in calculating cost of goods sold or inventory valuation.
Sales Proportion
The ratio or percentage of a product's sales in relation to total sales of all products, indicating its market performance.
- Assess how the composition of sales influences profitability, the point of no financial gain or loss, and the aggregate demand for products.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
A
Explanation :
Since product Y has a higher contribution margin ratio (50%) compared to product X (40%), decreasing the proportion of sales of X and presumably increasing the proportion of sales of Y would increase the overall weighted average contribution margin.
Learning Objectives
- Assess how the composition of sales influences profitability, the point of no financial gain or loss, and the aggregate demand for products.