Question

Fields Corporation has two divisions: Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Fields incurs $2,220,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear, it is 50%. What is the weighted-average contribution margin ratio?

a. 37%

b. 40%

c. 43%

d. 50%

Answer 1

The weighted-average contribution margin ratio is 37%.

Step-by-step explanation:

To find the weighted-average contribution margin ratio, we need to multiply each division's contribution margin ratio by its sales mix, and then add them together.

For the Sporting Goods division:
Contribution margin ratio = 30%
Sales mix = 65%

Weighted contribution margin ratio for Sporting Goods = 30% * 65% = 19.5%

For the Sports Gear division:
Contribution margin ratio = 50%
Sales mix = 35%

Weighted contribution margin ratio for Sports Gear = 50% * 35% = 17.5%

The weighted-average contribution margin ratio = Weighted contribution margin ratio for Sporting Goods + Weighted contribution margin ratio for Sports Gear = 19.5% + 17.5% = 37%.