Question

Fat Cat Furniture store sells two types of products; cat beds and scratching posts. Over the past year Fat at sold 6,000 cat beds and 4,000 scratching posts, the sales mix of 6,000 beds to 4,000 posts creates a percentage of 60% for the cat beds and 40% for the scratching posts. Fat Cat’s total fixed costs are $40,000. The cat bed’s unit selling price is $44.00 and variable costs per bed are $24.00. The scratching post’s unit selling price is $100.00 and variable cost per post is $30.00. Required: Calculate the weighted average contribution margin per unit.

Answer 1

To calculate the weighted average contribution margin per unit, subtract the variable cost per unit from the unit selling price. Multiply the contribution margin per unit for each product by its sales mix percentage and sum the results.

Step-by-step explanation:

To calculate the weighted average contribution margin per unit, we need to first calculate the contribution margin per unit for each product. The contribution margin per unit is calculated by subtracting the variable cost per unit from the unit selling price. For the cat beds, the contribution margin per unit is $44.00 - $24.00 = $20.00. For the scratching posts, the contribution margin per unit is $100.00 - $30.00 = $70.00. Next, we calculate the weighted average contribution margin per unit by multiplying the contribution margin per unit for each product by its sales mix percentage and summing the results. The weighted average contribution margin per unit is calculated as: (0.60 * $20.00) + (0.40 * $70.00) = $12.00 + $28.00 = $40.00.