Question

Clipper Company sells two types of nail clippers. One focuses on the economy oriented customer and the other aims to satisfy the high-end clientele. The economy clipper cost $3 and has a sales price of $5. The high-end model costs $9 and sales for $12. Fixed costs associated with this product line amount to $35,880. Economy clippers constitute 70 percent of the market with the remaining 30 percent being high-end clippers. Based on this information what is the weighted average contribution margin?

a. $1.00
b. $1.80
c. $2.80
d. $2.30

Answer 1

The weighted average contribution margin is d. $2.30

Step-by-step explanation:

Contribution margin per unit of the economy clipper = Sales price - Cost per unit = $5 - $3 = $2

Contribution margin per unit of the high-end model = Sales price - Cost per unit = $12 - $9 = $3

Economy clippers constitute 70 percent of the market with the remaining 30 percent being high-end clippers.

The weighted average contribution margin = Contribution margin of the economy clipper x 70% + Contribution margin of the high-end model x 30% = $2 x 70% + $3 x 30% = $2.3