Question

Vaughn Manufacturing has a weighted-average unit contribution margin of $30 for its two products, Standard and Supreme. Expected sales for Vaughn are 40000 Standard and 60000 Supreme. Fixed expenses are $1950000. At the expected sales level, Vaughn’s net income will be:

Answer 1

expected income 105,000

Step-by-step explanation:

Our goal would be to multiply the average contribution margin of the company by the total units produced.

`average \: contribution * units\: sold = contribution \: margin\\30 * (40,000 + 60,000) = 30* 100,000 = 300,000`

Important: the given is the weighted average, so the units mix (40% STD 60% SUPREME) is taken into consideration already, no need to additional calculation. If we were told the Contribution Margin per type of unit we will be needing to calculate the average CM.

Now, second step will be subtract the fixed cost from the contribution to get the pretax income

`Net \:Income = contribution \: margin - fixed \: cost\\300,000 - 195,000 = 105,000`