Smarty Pants Company sells two products, green camouflage pants and orange camouflage pants. Smarty Pants predicts that it will sell 1300 pairs of green pants and 1200 pairs of orange pants in the next period. The unit contribution margins for green pants and orange pants are $7.75 and $9.00, respectively. What is the weighted average unit contribution margin?

Question

Quizplus · Accepted Answer

To calculate the weighted average unit contribution margin, we need to take into account the proportion of each product's sales.

Weighted Average Unit Contribution Margin = (Contribution Margin of Green Pants x Proportion of Green Pant Sales) + (Contribution Margin of Orange Pants x Proportion of Orange Pant Sales)

Proportion of Green Pant Sales = 1300 / (1300 + 1200) = 0.52 
Proportion of Orange Pant Sales = 1200 / (1300 + 1200) = 0.48

Weighted Average Unit Contribution Margin = ($7.75 x 0.52) + ($9.00 x 0.48) 
= $4.03 + $4.32 
= $8.35

Therefore, the best choice is B, with a weighted average unit contribution margin of $8.35.

Smarty Pants Company Sells Two Products, Green Camouflage Pants and Orange