McCoy Brothers manufactures and sells two products, A and Z in the ratio of 5:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500.
- Compute the contribution margin per composite unit.

Question

Quizplus · Accepted Answer

We need to first calculate the weighted average contribution margin per unit.
Weighted average contribution of A = ($75 - $35) * 5/7 = $200/ unit
Weighted average contribution of Z = ($95 - $40) * 2/7 = $150/ unit

Therefore, the weighted average contribution margin per unit = $200 * 5/7 + $150 * 2/7 = $310/ unit
The fixed cost per unit can be calculated as $418,500/ (5+2) units = $69,750/ unit

Hence, the contribution margin per composite unit = weighted average contribution margin per unit - fixed cost per unit = $310 - $69,750 = $240

Therefore, the best choice is E, as it matches with the calculated contribution margin per composite unit.

McCoy Brothers Manufactures and Sells Two Products, a and Z