McCammon Co. sells three products with the following sales and variable cost rates: What is McCammon's total contribution margin ratio at the current sales mix?

Question

McCammon Co. sells three products with the following sales and variable cost rates:  What is McCammon's total contribution margin ratio at the current sales mix?

Quizplus · Accepted Answer

To find the total contribution margin ratio, we need to first calculate the contribution margin ratio for each product by dividing the contribution margin (sales - variable cost) by the sales revenue.

For product A: ($120 - $70) / $120 = 0.417 or 41.7% 
For product B: ($90 - $60) / $90 = 0.333 or 33.3% 
For product C: ($60 - $30) / $60 = 0.5 or 50%

Next, we need to weight each contribution margin ratio by the proportion of sales for each product.

Product A sales = $600,000 / $270 = 2,222 units = 2,222 * $120 = $266,640 
Product B sales = $360,000 / $90 = 4,000 units = 4,000 * $90 = $360,000 
Product C sales = $240,000 / $60 = 4,000 units = 4,000 * $60 = $240,000

Total sales revenue = $266,640 + $360,000 + $240,000 = $866,640

Weighted contribution margin ratio = 
(41.7% x $266,640 / $866,640) + 
(33.3% x $360,000 / $866,640) + 
(50% x $240,000 / $866,640) 
= 0.205 or 20.5%

Therefore, the answer is C) 63%.