A product sells for $10 and has unit variable costs of $8. This product accounts for $25,000 in annual sales, out of the firm's total of $100,000. When performing multiproduct break-even analysis, the weighted contribution of this product is approximately
A) 0.05
B) 0.25
C) 0.0625
D) 0.75

Question

Quizplus · Accepted Answer

Weighted contribution = (contribution per unit x sales mix ratio) / weighted average unit selling price

Contribution per unit = unit selling price - unit variable cost = $10 - $8 = $2

Sales mix ratio = sales of the product / total sales = $25,000 / $100,000 = 0.25

Weighted average unit selling price = total sales / total units = $100,000 / (total units)

We don't have information about total units, so we can't compute the weighted average unit selling price. However, we can assume that the total units are sold at the same price as this product. In that case, the weighted average unit selling price would be $10.

Therefore, the weighted contribution = ($2 x 0.25) / $10 = 0.05 or 5%.

A Product Sells for $10 and Has Unit Variable Costs