Answer (D) is correct . Contribution margin equals selling price minus variable costs. The product contribution margins are: ? Racer: $570 – $200 = $370 5-Speed: $180 – $90 = $90 The sales mix is: Racer: 8,000 ÷ (8,000 + 12,000)? = ?40% 5-Speed: 12,000 ÷ (8,000 + 12,000)? = ?60% Multiply the CM by the sales mix for each product, and add the results. Weighted-average CM ?= ($370 × 40%) + ($90 × 60%) ?= $148 + $54 ?= $202
Answer (A) is incorrect because The sales mix dictates how much of the total CM will come from sales of each product. Unit sales are attributable 40% to racers and 60% to 5- speeds, so 40% of the UCM for racers must be added to 60% of the UCM for 5-speeds to get the weighted-average CM.
Answer (B) is incorrect because The sales mix dictates how much of the total CM will come from sales of each product. Unit sales are attributable 40% to racers and 60% to 5- speeds, so 40% of the UCM for racers must be added to 60% of the UCM for 5-speeds to get the weighted-average CM.
Answer (C) is incorrect because The sales mix dictates how much of the total CM will come from sales of each product. Unit sales are attributable 40% to racers and 60% to 5- speeds, so 40% of the UCM for racers must be added to 60% of the UCM for 5-speeds to get the weighted-average CM.
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