Question

Isabellas, Inc., a local convenience store, sells soft drinks. It sells two large drinks for every small drink. A large drink sells for $3.00 with a variable cost of $0.80. A small drink sells for $1.00 with a variable cost of $0.50. The weighted average contribution margin is intermediate calculations and your final answer to the nearest cent.) (Round any Select one: O A. $1.35 per drink B. $4.90 per drink C. $2.20 per drink D. $1.63 per drink

Answer 1

Option (D) is correct.

Step-by-step explanation:

Large drink:

Contribution margin per unit = Selling price - Variable cost

= $3.00 - $0.80

= $2.20

Small drink:

Contribution margin per unit = Selling price - Variable cost

= $1.00 - $0.50

= $0.50

Sales mix ratio 2:1

(2/3 × 100 = 66.67% for large drink

and 1/3 × 100 = 33.33% for small drink

Weighted contribution margin:

= Contribution margin per unit × sales mix percentage

= ($2.20 × 66.67%) + ($0.50 × 33.33%)

= $1.47 + 0.17

= $1.63 or $1.64 (approx)