Question

Barnes Company sells two products, X and Y. For the coming year, Barnes predicts sales of 5,000 units of X and 10,000 units of Y. The contribution margins per unit of products X and Y are $5 and $4, respectively. The weighted-average contribution margin is $6.50 per unit.

A. True
B. False

Answer 1

B. False

Step-by-step explanation:

The statement is False.

This conclusion can be reached just by analyzing the data provided. The weighted-average contribution margin ($6.50) cannot be higher than all of the individual contribution margins ($5 and $4). The actual weighted-average contribution margin is:

`WACC = (5,000)/(5,000+10,000)*\$5 +(10,000)/(5,000+10,000)*\$4 \\WACC = \$4.33`