Question

Ahmed & Co. makes and sells two types of shoes, Plain and Fancy. Data concerning these products are as follows: Plain Fancy Unit selling price $20.00 $31.00 Variable cost per unit 15.00 26.00 Sixty percent of the unit sales are Plain, and annual fixed expenses are $27,500. The weighted-average unit contribution margin is: a)$80. b)$5.00. c)$5.25 d)$13.00. e)None of the answers is correct.

Answer 1

The correct weighted-average unit contribution margin is $5.00, option e) None of the answers is correct.

Step-by-step explanation:

The weighted-average unit contribution margin is a measure of how much each unit sold contributes to covering the fixed expenses of the company. To calculate the weighted-average unit contribution margin, we need to find the weighted-average contribution margin for each type of shoe, Plain and Fancy.

Contribution margin for Plain shoes:

(Unit selling price - Variable cost per unit) x Percentage of unit sales for Plain shoes

Contribution margin for Fancy shoes:

(Unit selling price - Variable cost per unit) x Percentage of unit sales for Fancy shoes

Weighted-average unit contribution margin:

(Contribution margin for Plain shoes + Contribution margin for Fancy shoes)

Therefore, the weighted-average unit contribution margin can be calculated as follows:

Plain shoes: ($20.00 - $15.00) x 0.6 = $3.00

Fancy shoes: ($31.00 - $26.00) x 0.4 = $2.00

Weighted-average unit contribution margin:

= $3.00 + $2.00

= $5.00

The correct weighted-average unit contribution margin is $5.00, option e) None of the answers is correct.