Answer:
Weighted average contribution margin ratio = 0.37 or 37%
Step-by-step explanation:
The contribution margin tells us how much a product's selling price is contributing towards covering the fixed costs after deducting the variable cost related to the product. Thus, the contribution margin is calculated as the difference between the selling price and the variable cost.
The contribution margin ratio is the contribution margin expressed as a percentage of the selling price.
To calculate the composite or overall break even point for a business having more than one product, we use the weighted average contribution margin ratio.
It is calculated as follows,
Weighted average contribution margin ratio = Weight of Product A in sales mix * contribution margin ratio of product A + Weight of Product B in sales mix * contribution margin ratio of product B + ... + Weight of Product N in sales mix * contribution margin ratio of product N
Weighted average contribution margin ratio = 0.45 * 0.7 + 0.55 * 0.1
Weighted average contribution margin ratio = 0.37 or 37%