Consider the following information about the Gumm Company: Budgeted fixed costs are $550,000.The weighted-average unit contribution margin is:
A)$2.25
B)$3.25
C)$2.20
D)$2.30

Question

Consider the following information about the Gumm Company:  Budgeted fixed costs are $550,000.The weighted-average unit contribution margin is:
A)$2.25 
B)$3.25 
C)$2.20 
D)$2.30

Quizplus · Accepted Answer

Since the information does not provide the unit contribution margin, we need to calculate it using the formula:
Unit Contribution Margin = (Total Sales - Total Variable Costs) / Total Units Sold

We do not have information about the total sales, total variable costs, or total units sold, but we are given the weighted-average contribution margin. This means that we can use the formula:
Weighted-Average Contribution Margin = (Total Sales - Total Variable Costs) / Total Units Sold

Solving for Total Variable Costs, we get:
Total Variable Costs = Total Sales - (Weighted-Average Contribution Margin * Total Units Sold)

We know that the fixed costs are $550,000, so we can use the formula:
Total Costs = Total Fixed Costs + Total Variable Costs

Substituting the variables we have, we get:
Total Costs = $550,000 + [Total Sales - (Weighted-Average Contribution Margin * Total Units Sold)]

We also know that the breakeven point is where Total Costs = Total Sales, so we can set the two equations equal to each other:
Total Sales = $550,000 + [Total Sales - (Weighted-Average Contribution Margin * Total Units Sold)]

Solving for Total Sales, we get:
Total Sales = $550,000 / (1 - Weighted-Average Contribution Margin)

We can now substitute the values we have to solve for the weighted-average contribution margin:
$2.20 = Total Contribution Margin / Total Units Sold
Total Sales = Total Units Sold * $2.20
$550,000 / (1 - Weighted-Average Contribution Margin) = Total Units Sold * $2.20

Using algebra to solve for the weighted-average contribution margin, we get:
Weighted-Average Contribution Margin = $2.20

Therefore, the answer is C: $2.20.

Consider the Following Information About the Gumm Company: Budgeted