Question

Essex company sells two products- A and B. Product A sales are two times that of product B. The contribution per unit for A is $4 and B is $1. What is the weighted average contribution margin per unit?

A) $2.25
B) $2.50
C) $2.75
D) $3.00

Answer 1

The correct answer is option D) $3.00.

Step-by-step explanation:

The student's question relates to calculating the weighted average contribution margin per unit when sales of Product A are twice that of Product B, and their individual contribution margins are $4 and $1, respectively. To find the weighted average, we multiply the contribution margin of each product by their relative sales quantities to reflect their proportion in total sales, and then sum these values before dividing by the total number of units sold.

Here is the step-by-step calculation:

• Let the number of units sold of Product B be x.
• Then, the number of units sold of Product A is 2x (twice of B).
• Total contribution from Product A = 2x units * $4/unit = $8x.
• Total contribution from Product B = x units * $1/unit = $1x.
• Total units sold = 2x + x = 3x.
• Total contribution = $8x + $1x = $9x.
• Weighted average contribution margin = Total contribution / Total units = $9x / 3x = $3.