Question

Darth Company sells three products. Sales and contribution margin ratios for the three products follow:
PRODUCTS X Y ZSales in dollars …………………………… $20,000 $ 40,000 $100,000contribution margin ratio ……………….. 45% 40% 25%
Given these data, the contribution margin ratio for the company as a whole would be:A. 25%B. 40.25%C. 31.25%D. it is impossible to determine from the given data

Answer 1

Answer:

C. 31.25%.

Explanation:

PRODUCTS                   X               Y                 Z               Total

Sales in dollars         $20,000   $40,000   $100,000     $160,000

CM ratio                     45%              40%           25%

Contribution margin ratio can be calculated by weighted average method base on the sales ratio of each product.

Contribution margin as a whole = ( CM ratio of X x Ratio of X in total sales ) + ( CM ratio of Y x Ratio of Y in total sales ) + ( CM ratio of Z x Ratio of Z in total sales )

Contribution margin as a whole = ( 45% x $20,000 / $160,000 ) + ( 40% x $40,000 / $160,000 ) + ( 25% x $100,000 / $160,000 )

Contribution margin as a whole = 5.625% + 10% + 15.625% = 31.25%