Question

A company currently sells products Aye, Bee, and Cee in equal quantities and at the same selling price per unit. The contribution margin ratio for product Aye is 40%, for product Bee is 50%, and the overall contribution margin ratio for the company is 48%. Suppose that the sales mix changes to 40% Aye, 25% Bee, and 35% Cee, what would be the new overall contribution margin ratio for the company?

Answer 1

Answer:

new weighted contribution margin = 47.4%

Explanation:

(0.4A + 0.5B + XC) / 3 = 0.48

0.4A + 0.5B + XC = 0.48 x 3 = 1.44

since A, B and C all have the same selling price and all sell the same amount of goods, then contribution margin for C = 1.44 - 0.4 - 0.5 = 0.54

if the new sales mix changes to 40% Aye, 25% Bee, and 35% Cee, then the new weighted contribution margin = (0.4 x 0.4) + (0.25 x 0.5) + (0.35 x 0.54) = 0.474 = 47.4%