Question

The Greenery sells three products. Product A has a contribution margin of $10 per unit, Product B has a contribution margin of $15 per unit and Product C has a contribution margin of $12 per unit. Sales are: 25% A, 35% B and 40% C. The weighted average unit contribution for The Greenery is

Answer 1

Weighted average contribution margin per unit = $12.55 per unit

Step-by-step explanation:

The weighted average contribution margin is used to determine the contribution margin of the business in case its product line consists of more than one product. It is calculated by taking the contribution margin of each product and multiplying it with the sales mix weight of each product and summing it up. The formula can be written as,

Weighted average contribution margin per unit = wA * CM A + wB * CM B + .... + wN * CM N

Where,

• w represents the weight of each product's sales in the sales mix
• CM represents the contribution margin of each product

Weighted average contribution margin per unit = 0.25 * 10 + 0.35 * 15 +

0.4 * 0.12

Weighted average contribution margin per unit = $12.55 per unit