Question

Grandma’s Yarn Factory produces and designs two specialty yarn products, green yarn and scarlet yarn. The manager estimates that clients will purchase 3,000 green yarn spools and 1,100 scarlet yarn spools by the end of the next period. The unit contribution margins for green yarn and scarlet yarn are $2.80 and $3.50. What is the weighted-average unit contribution margin?

Answer 1

Answer:

$2.99

Explanation:

After you determine individual contribution margins, you can calculate the weighted average depending on the % of total sales of each product.

weighted average contribution margin = [(total sales green yarn x units price) + (total sales scarlet yarn x unit price)] / (total sales green yarn + total sales scarlet yarn)

weighted average contribution margin = [(3,000 x $2.80) + (1,100 x $3.50)] / (3,000 + 1,100) = ($8,400 + $3,850) / 4,100 = $2.987 ≈ $2.99

Answer 2

Answer:

$2.99

Explanation:

The weighted average contribution margin refers to the average amount that a group of different products/services help with regards to lowering the fixed costs of a business. In this scenario the weighted-average unit contribution margin is $2.99. This price is calculated by multiplying the unit contribution margins of each product by their estimated sales (in this scenario). Then adding them and dividing the total by the total number of unit sales like so.

(2.80 * 3000) + (3.50 * 1100)

8400 + 3850 = 12,250

12,250 / 4100 (total sales) = 2.89 .... round up to $2.99