Question

Barclay Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500. The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate the firm's contribution margin ratio per composite unit (rounded to the nearest whole percentage).

Answer 1

Answer:

The contribution margin ratio per composite unit for Youth:Adult:Recreational models is 25%:45%:30% .

Explanation:

The given sales mix ratio is 5:9:6 for Youth:Adult:Recreational cycle models.

The first step would be to calculate the combined contribution margin per unit =

  $105 x 5 + $450 x 9 x $500 x 6  / 20

(HERE 20 IS THE TOTAL NUMBER OF UNITS)

= 525 + 4050 + 3000 / 20

= 7575 / 20

= 378.75

Now calculating the individual contribution unit of youth, adult and recreational from the total combined units -

Youth = 378.75 x 5 / 20

          = 94.6875

Adult = 378.75 x 9 /20

         = 170.4375

Recreational = 378.75 x 6 /20

                      = 113.625

Now calculating what percentage they form -

Youth = 94.6875 / 378.75 x 100

         = 25%

Adult = 170.4375 / 378.75 x 100

         = 45%

Recreational = 113.625 / 378.75 x 100

                      = 30%