Reynold Coffee sells three large coffees for every two small ones. A small coffee sells for $4 per cup, with a variable cost of $2 per cup. A large coffee sells for $5 per cup with a variable cost of $3 per cup. What is the weighted-average contribution margin?

Question

Quizplus · Accepted Answer

The contribution margin per cup is calculated by subtracting the variable cost from the selling price. For a small coffee, this is $4 - $2 = $2. For a large coffee, it's $5 - $3 = $2. Given the ratio of three large coffees for every two small ones, the weighted-average contribution margin can be calculated as follows: [(3 large coffees * $2 contribution margin) + (2 small coffees * $2 contribution margin)] / (3 large coffees + 2 small coffees) = ($6 + $4) / 5 = $10 / 5 = $2.00.

Reynold Coffee Sells Three Large Coffees for Every Two Small