Barkley Company sells two products, red cups and black mugs. Barkley predicts that it will sell 2100 red cups and 600 black mugs in the next period. The unit contribution margins for red cups and black mugs are $2.70 and $3.60, respectively. What is the weighted average unit contribution margin?

Question

Quizplus · Accepted Answer

To calculate the weighted average unit contribution margin, we need to first find the total contribution margin for each product and then multiply it by the proportion of sales for that product.

Total contribution margin for red cups = 2100 x $2.70 = $5670
Total contribution margin for black mugs = 600 x $3.60 = $2160

Total sales = 2100 + 600 = 2700
Proportion of sales for red cups = 2100/2700 = 0.78
Proportion of sales for black mugs = 600/2700 = 0.22

Weighted average unit contribution margin = ($5670 x 0.78) + ($2160 x 0.22) / 2700
= $4416.60 / 2700
= $1.635

Therefore, the closest option is C ($2.90).

Barkley Company Sells Two Products, Red Cups and Black Mugs