Question

Swifty Candle Supply makes candles. The sales mix (as a percentage of total dollar sales) of its three product lines is birthday candles 30%, standard tapered candles 60%, and large scented candles 10%. The contribution margin ratio of each candle type is shown below.

Candle Type		Contribution Margin Ratio
Birthday		20%
Standard tapered		35%
Large scented		50%

What is the weighted-average contribution margin ratio?

Weighted-average contribution margin ratio

%

If the company’s fixed costs are $533,440 per year, what is the dollar amount of each type of candle that must be sold to break even?

		Birthday		Standard tapered		Large scented
Total break-even point		$		$		$

Answer 1

Solution :

(1) Weighted Average Contribution Margin Ratio :

Particulars	Birthday	Standard	Large	Total
(a) Sales %	30%	60%	10%	100%
(b) Contribution Margin Ratio	20%	35%	50%
(c) Weighted Contribution (a * b)	6%	21%	5%	32%

weighted-average contribution margin ratio = 32%

(2)

Total Breakeven Sales in Dollars = Fixed Cost / Weighted Average Contribution Margin Ratio

= $ 533,440 / 32%

= $ 1,667,000

Particulars	Birthday	Standard	Large
(a) Sales %	30%	60%	10%
(b) Breakeven Sales ($ 1,667,000 * a)	$ 500,100	$ 1,000,200	$ 166,700

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