Rusty Co. sells two products, X and Y. Last year Rusty sold 5,000 units of X's and 35,000 units of Y's. Related data are: What was Rusty Co.'s weighted average unit contribution margin?
A) $60.00
B) $20.00
C) $40.00
D) $22.50

Question

Rusty Co. sells two products, X and Y. Last year Rusty sold 5,000 units of X's and 35,000 units of Y's. Related data are:  What was Rusty Co.'s weighted average unit contribution margin?
A) $60.00 
B) $20.00 
C) $40.00 
D) $22.50

Quizplus · Accepted Answer

To find the weighted average unit contribution margin, we need to calculate the contribution margin per unit for each product and then weight it by the proportion of units sold.

For product X: 
Contribution margin per unit = $80 - $20 = $60

For product Y: 
Contribution margin per unit = $50 - $10 = $40

Weighted average unit contribution margin = (Proportion of X sold x CM/unit X) + (Proportion of Y sold x CM/unit Y)

Proportion of X sold = 5,000 units / 40,000 units = 1/8 
Proportion of Y sold = 35,000 units / 40,000 units = 7/8

Weighted average unit contribution margin = (1/8 x $60) + (7/8 x $40) = $22.50

Therefore, the answer is D, $22.50.

Rusty Co Sells Two Products, X and Y