A company currently sells products Aye, Bee, and Cee in equal quantities and at the same selling price per unit. The contribution margin ratio for product Aye is 40%, for product Bee is 50%, and the overall contribution margin ratio for the company is 48%. Suppose that the sales mix changes to 40% Aye, 25% Bee, and 35% Cee, what would be the new overall contribution margin ratio for the company?

Question

Quizplus · Accepted Answer

To find the new overall contribution margin ratio, we need to calculate the weighted average of the contribution margin ratio for each product based on the new sales mix.

New overall contribution margin ratio = (0.4 x 0.4) + (0.25 x 0.5) + (0.35 x 0) 
= 0.16 + 0.125 + 0 
= 0.285 or 28.5%

Therefore, the closest answer choice is C, 47.4%.

A Company Currently Sells Products Aye, Bee, and Cee in Equal