Question

Ralph Lauren sells suits and ties. Suits sell for $1000 each, and cost $300 in variable expenses to make each. Ties sell for $100, and cost $75 in variable expenses to make. Ralph’s fixed expenses are $60,000. If 90 percent of his revenues are from suits, what is Ralph’s weighted average contribution margin ratio?

Answer 1

Weighted average contribution margin ratio= $632.5

Step-by-step explanation:

Giving the following information:

Suits:

Selling price= $1,000

Unitary variable cost= $300

Sales participation= 90%

Ties:

Selling price= $100

Unitary variable cost= $75

Sales participation= 10%

To calculate the weighted contribution ratio, we need to use the following formula:

Weighted average contribution margin ratio= weighted average selling price - weighted average unitary varialble cost

weighted average selling price= (1,000*0.9) + (100*0.1)= 910

weighted average unitary varialble cost= (300*0.9) + (75*0.1)= 277.5

Weighted average contribution margin ratio= 910 - 277.5= $632.5