Answer:
$6.55
Explanation:
A company sells two products. Product A sells for $10.00 per unit and Product B sells for $8.00 per unit. Variable costs are $3.00 for Product A and $2.50 for Product B. If the sales mix is 70% Product A and 30% Product B, the weighted average contribution margin is _____.
Step 1
Calculate Contribution per product = Selling Price - Variable Costs
Contribution for A = 10 - 3 = 7
Contribution for B = 8 - 2.5 = 5.5
Step 2
Multiply the Contribution per product by its sales mix
A = 7 x 70% = 4.9
B = 5.5 x 30% = 1.65
Step 3
Add up the weighted contribution margins for each product
Therefore the the weighted average contribution margin for both product is (4.9 + 1.65) = $6.55
