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Ed Green Corporation has two divisions; Outdoor Sports and Indoor Sports.The sales mix is 60% for Outdoor Sports and 40% for Indoor Sports.Green incurs $2,420,000 in fixed costs.The contribution margin ratio for the Outdoor Sports Division is 40%, while for the Indoor Sports Division it is 50%.
-What will be the total contribution margin at the break-even point?

Question

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Ed Green Corporation has two divisions; Outdoor Sports and Indoor Sports.The sales mix is 60% for Outdoor Sports and 40% for Indoor Sports.Green incurs $2,420,000 in fixed costs.The contribution margin ratio for the Outdoor Sports Division is 40%, while for the Indoor Sports Division it is 50%.
-What will be the total contribution margin at the break-even point?

Quizplus · Accepted Answer

To find the break-even point, we need to calculate the weighted average contribution margin ratio, using the sales mix:

Weighted average contribution margin ratio = (0.6 x 0.4) + (0.4 x 0.5) = 0.44

Total contribution margin at the break-even point = Fixed costs / Weighted average contribution margin ratio

Total contribution margin at the break-even point = $2,420,000 / 0.44 = $5,500,000

Therefore, the correct answer is C.

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