Question

11)X Company estimates the following for its two products in 2019:

	Product X	Product Y
Selling price	$13.80	$33.50
Variable cost	$11.60	$25.00
Production [units]	59,000	11,000

Estimated fixed costs in 2019 are $72,000. What is X Company's estimated weighted average contribution margin per unit in 2019?

12) X Company, a merchandiser, had the following income statement for 2018:

Sales	$194,103
Cost of goods sold	123,250
Gross margin	$70,853
Other operating expenses	47,940
Profit	$22,913

$103,850 of the cost of goods sold were variable, and $28,140 of the other operating expenses were variable. If cost behavior in 2019 is expected to continue as it did in 2018, what must total sales be in 2019 in order for X Company to break even?

Answer 1

Solution 11:

Computation of weighted average contribution margin per unit
Particulars	Product X	Product Y	Total
Selling price per unit	$13.80	$33.50
Variable cost per unit	$11.60	$25.00
Contribution margin per unit	$2.20	$8.50
Sales mix	84.29%	15.71%
Weighted average contribution margin per unit	$1.85	$1.34	$3.19

Solution 12:

Variable cost for 2018 = $103,850 + $28,140 = $131,990

Fixed cost for 2018 = ($123,250 - $103,850) + ($47,940 - $28,140)

= $19,400 + $19,800 = $39,200

Contribution margin ratio = Contribution margin / Sales = ($194,103 - $131,990) / $194,103 = 32%

Required sales in 2019 to breakeven = Fixed costs / CM ratio = $39,200 / 32% = $122,500