Question

Faune Furniture Co. consists of two divisions, Bedroom Division and Dining Room Division. The results of operations for the most recent quarter are:

Bedroom Division Dining Room Division Total
Sales $500,000 $750,000 $1,250,000
Variable costs 225,000 450,000 675,000
Contribution margin $275,000 $300,000 $ 575,000
(a) Determine the company’s sales mix. (Round answers to 2 decimal places, e.g. 0.15.)
Sales mix
Bedroom Division
Dining Room Division
(b) Determine the company’s weighted-average contribution margin ratio. (Round answer to 2 decimal places, e.g. 0.15.)
Weighted-average contribution margin ratio

Answer 1

The sales mix for Faune Furniture Co. is 40% for the Bedroom Division and 60% for the Dining Room Division. The weighted-average contribution margin ratio for the company is 47.8% for the Bedroom Division and 52.2% for the Dining Room Division.

Step-by-step explanation:

To determine the company's sales mix, we need to calculate the ratio of sales for each division to the total sales. The sales mix for the Bedroom Division would be $500,000 / $1,250,000 = 0.4 or 40%. The sales mix for the Dining Room Division would be $750,000 / $1,250,000 = 0.6 or 60%. Therefore, the company's sales mix is 40% for the Bedroom Division and 60% for the Dining Room Division.

To determine the company's weighted-average contribution margin ratio, we need to calculate the ratio of contribution margin for each division to the total contribution margin. The weighted-average contribution margin ratio for the Bedroom Division would be $275,000 / $575,000 = 0.478 or 47.8%. The weighted-average contribution margin ratio for the Dining Room Division would be $300,000 / $575,000 = 0.522 or 52.2%. Therefore, the company's weighted-average contribution margin ratio is 47.8% for the Bedroom Division and 52.2% for the Dining Room Division.

Answer 2

a)

Sales mix:

Bedroom division = 0.40 or 40%

Dining room division = 0.60 or 60%

b)

Weighted average contribution margin = 0.46 or 46%

Step-by-step explanation:

a)

The sales mix is the proportion of sales of each product that the business makes relative to the total sales of the business.

Sales mix:

Bedroom division = 500000 / 1250000 = 2/5 or 40%

Dining room division = 750000 / 1250000 = 3/5 or 60%

b)

First we need to calculate the contribution margin ratio of each product.

Bedroom = 275000 / 500000 = 0.55 or 55%

Dining Room = 300000 / 750000 = 0.4 or 40%

The weighted average contribution margin can be calculated as follows,

Weighted average contribution margin = weight of Product A * contribution margin ratio of product A + weight of Product B * contribution margin ratio of product B

Weighted average contribution margin = 0.4 * 0.55 + 0.6 * 0.4

Weighted average contribution margin = 0.46 or 46%