Barclay Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500.
-The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate the firm's contribution margin ratio per composite unit (rounded to the nearest whole percentage).

Question

Barclay Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500. 
-The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate the firm's contribution margin ratio per composite unit (rounded to the nearest whole percentage).

Quizplus · Accepted Answer

To calculate the contribution margin ratio per composite unit, we need to calculate the weighted average contribution margin per unit across all three styles of bicycles.

Weighted average contribution margin per unit = (5 x $105 + 9 x $450 + 6 x $500) / 20 = $9,150 / 20 = $457.50

Contribution margin ratio per composite unit = ($457.50 / selling price of all units) x 100

Selling price of all units = (5 x $300) + (9 x $850) + (6 x $1,000) = $23,550

Contribution margin ratio per composite unit = ($457.50 / $23,550) x 100 = 1.94 x 100 = 194%

Therefore, the answer is C - 50%.

Barclay Enterprises Manufactures and Sells Three Distinct Styles of Bicycles