Asked by Savannah Fortson on Jun 17, 2024
Verified
The contribution margin per composite unit for the current sales mix (round to the nearest cent) is:
A) $17.00.
B) $ 5.67.
C) $20.00.
D) $37.00.
E) $25.00.
Sales Mix
Sales mix refers to the proportion of different products or services that a company sells, significantly impacting its overall profitability.
Contribution Margin
The amount remaining from sales revenue after variable expenses have been deducted, indicating how much revenue contributes to fixed costs and profits.
Fixed Costs
Costs that remain constant in total regardless of changes in the level of activity or volume of production, such as rent, salaries, and insurance.
- Recognize the elements and computation involved in determining the contribution margin and its ratio.
- Comprehend the principles of per-unit contribution margin and the use of composite units in scenarios involving multiple products.
Verified Answer
AB
Aaliyah BurnettJun 23, 2024
Final Answer :
C
Explanation :
To calculate the contribution margin per composite unit, we need to find the weighted average contribution margin for the three products. We can do this by calculating the contribution margin per unit for each product and then multiplying by its sales mix ratio:
Product M:
Unit price: $60
Variable cost: $40
Contribution margin: $20
Sales mix ratio: 3/6 = 0.5
Weighted contribution margin: $20 x 0.5 = $10
Product N:
Unit price: $40
Variable cost: $25
Contribution margin: $15
Sales mix ratio: 1/6 = 0.1667
Weighted contribution margin: $15 x 0.1667 = $2.50
Product O:
Unit price: $80
Variable cost: $60
Contribution margin: $20
Sales mix ratio: 2/6 = 0.3333
Weighted contribution margin: $20 x 0.3333 = $6.67
Total weighted contribution margin: $10 + $2.50 + $6.67 = $19.17
Therefore, the contribution margin per composite unit is $19.17. Rounded to the nearest cent, the answer is $20.00 (Choice C).
Product M:
Unit price: $60
Variable cost: $40
Contribution margin: $20
Sales mix ratio: 3/6 = 0.5
Weighted contribution margin: $20 x 0.5 = $10
Product N:
Unit price: $40
Variable cost: $25
Contribution margin: $15
Sales mix ratio: 1/6 = 0.1667
Weighted contribution margin: $15 x 0.1667 = $2.50
Product O:
Unit price: $80
Variable cost: $60
Contribution margin: $20
Sales mix ratio: 2/6 = 0.3333
Weighted contribution margin: $20 x 0.3333 = $6.67
Total weighted contribution margin: $10 + $2.50 + $6.67 = $19.17
Therefore, the contribution margin per composite unit is $19.17. Rounded to the nearest cent, the answer is $20.00 (Choice C).
Learning Objectives
- Recognize the elements and computation involved in determining the contribution margin and its ratio.
- Comprehend the principles of per-unit contribution margin and the use of composite units in scenarios involving multiple products.