Question

Barkley Company sells two​ products, red cups and black mugs. Barkley predicts that it will sell 2,700 red cups and 1,000 black mugs in the next period. The unit contribution margins for red cups and black mugs are $ 2.00 and $ 3.20​, respectively. What is the weighted average unit contribution​ margin? (Round the final answer to the nearest​ cent.)

Answer 1

Sales Units = Red Cups = 2,700 Red Cups

Sales Units = Black Mugs = 1,000 Black Mugs

Total Sales Units = 3,700 Units

Sales Mix – Red Cups = [2,700 / 3,000] x 100 = 72.97%

Sales Mix – Black Mugs = [1,000 / 3,700] x 100 = 27.03%

Weighted average unit contribution​ margin = [Contribution margin Red Cups x Sales Mix – Red Cups] + [Contribution margin Black Mugs x Sales Mix – Black Mugs]

= [$2 x 0.7297] + [$3.20 x 0.2703]

= $1.46 + $0.86

= $2.32 (Rounded to the nearest cent)

“Weighted average unit contribution​ margin = $2.32”