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X Company estimated the following for its three products, A, B, and C, for 2020: A     ...

X Company estimated the following for its three products, A, B, and C, for 2020:

A      B      C     
Revenue $57,540 $24,888 $74,844
Total variable costs 28,928 17,000 26,649
Contribution margin $28,613 $7,888 $48,195


Total fixed costs in 2020 were expected to be $17,400. What is the expected weighted average contribution margin rate in 2020?

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Answer #1

Weighted average contribution margin rate in 2020

Total Sales = $157,272 [$57,540 + $24,888 + $74,844]

Weighted average contribution margin rate in 2020 = Sum[Contribution margin ratio x Sales Mix]

= [($28,613/$57,540) x ($57,540/$157,272)] + [($7,888/$24,888) x ($24,888/$157,272)] + [($48,195/$74,844) x ($48,195/$157,272)]

= [0.49727 x 0.36586] + [0.31694 x 0.15825] + [0.64394 x 0.47589]

= 0.18193 + 0.05016 + 0.30644

= 0.5385320 or

= 53.85%

Hence, the Weighted average contribution margin rate in 2020 will be 53.85%

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