Question

Geneva Bottled Water Co. is assembling a weighted average contribution margin chart to better analyze differences between sales on 36 oz. and the 20 oz. bottled water. The sales price per unit of the 36 oz. bottled water is $ 2.99 while the sales price per unit of the 20 oz. bottled water is $ 1.21. The contribution margin per unit for the 36 oz. bottle is $ 2.57 and the contribution margin of the 20 oz. bottle is $ 0.21. The 20 oz. bottle outsells the 36 oz. bottle by a 4​:1 relationship. What is the weighted average contribution margin per unit on these two​ products? (Round the final answer to the nearest​ cent.)

Answer 1

Calculation of weighted average contribution per unit of Geneva bottled water co.:

particulars	36 oz bottle $	20 oz bottle $
selling price per unit	2.99	1.21
less: variable cost ( selling price less contribution per unit)	0.42	1.00
contribution per unit (a)	2.57	0.21
sales mix (b)	1	4
contribution margin (a) * (b)	2.57	0.84

weighted average contribution margin per unit = total contribution margin of the two products / total of sales mix

= (2.57 + 0.84) / (1+ 4)

= 3.41 / 5

= 0.682 $ per unit

by rounding it to nearest cents it becomes

0.70 cents

* in the question it is mentioned that sales of 20 oz bottles out sells the 36 oz and their relationship is 4:1 it means when the company sells one 36 oz bottle the same time it can sell four 20 oz bottles , therefore these are taken as the weights to be multiplied with the contribution per unit .