Question

Converse company has two products- A and B. The weighted average contribution margin per unit is $4. Converse sells twice as many As as Bs. The contribution margin per unit for B is $2. What is it for A?

A) $3
B) $4
C) $5
D) $6

Answer 1

The contribution margin for Product A is $5. This was calculated using the weighted average contribution margin formula based on the given information that A's are sold twice as much as B's and the contribution margin for B is $2.

Step-by-step explanation:

If the Converse company has a weighted average contribution margin per unit of $4 and sells twice as many Product A's as Product B's with Product B having a contribution margin of $2, you can determine the contribution margin for Product A using a weighted average formula.

Let x represent the contribution margin for A. Since there are twice as many A's sold as B's, the weight for A's contribution margin will be 2, and the weight for B's will be 1. The equation based on the weighted average is:

Weighted Average = (Weight of A × Contribution Margin of A + Weight of B × Contribution Margin of B) / (Weight of A + Weight of B)

Plugging the numbers in we get:

$4 = (2x + $2) / 3

Multiplying both sides by 3 to eliminate the fraction gives us:

$12 = 2x + $2

Subtracting $2 from both sides gives us:

$10 = 2x

Dividing both sides by 2 gives us:

x = $5

This means that the contribution margin for Product A is $5.