Question

Business Solutions sells upscale modular desk units ( 60% of sales) and office chairs ( 40% of sales). Selling prices are $1,170 p unit and $680 per chair. Variable costs are $700 per desk unit and $340 per chair. Fixed costs are $200,640. Required: Compute the weighted-average contribution margin.

Answer 1

The weighted-average contribution margin for the company, with desk unit sales at 60% and chair sales at 40%, is $418. This figure is determined by calculating the individual contribution margins of $470 for desks and $340 for chairs and then applying the sales mix percentages.

Step-by-step explanation:

The student has asked to compute the weighted-average contribution margin for a company that sells two products: upscale modular desk units and office chairs. To calculate this, first, we need to determine the contribution margin for each product, which is the selling price minus the variable cost. The contribution margin for a desk unit is $1,170 - $700 = $470, and for an office chair, it is $680 - $340 = $340.

Next, given the sales mix of 60% for desk units and 40% for office chairs, the weighted-average contribution margin can be computed as follows:

Weighted-average contribution margin = (Desk unit contribution margin × Percentage of desk unit sales) + (Chair contribution margin × Percentage of chair sales)

Weighted-average contribution margin = ($470 × 60%) + ($340 × 40%)

Weighted-average contribution margin = $282 + $136

Weighted-average contribution margin = $418

This value represents the average amount each sale contributes toward covering the fixed costs and generating profits.