Question

Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears below: Claim Jumper Makeover Total Sales $ 104,000 $ 52,000 $ 156,000 Variable expenses 32,200 6,800 39,000 Contribution margin $ 71,800 $ 45,200 117,000 Fixed expenses 86,850 Net operating income $ 30,150 Required: 1. What is the overall contribution margin (CM) ratio for the company

Answer 1

Answer:

Weighted average contribution margin ratio= 0.726

Explanation:

Giving the following information:

Sales:

Claim Jumper= $104,000

Makeover= $52,000

Variable cost:

Clain Jumper= $32,200

Makeover= $6,800

First, we need to calculate the participation of the sales for each product:

Claim Jumper= 104,000/156,000= 0.67

Makeover= 52,000/156,000= 0.33

To calculate the weighted average contribution margin ratio, we need to use the following formula:

Weighted average contribution margin ratio= (weighted average sales - weighted average variable cost)/ weighted average sales

weighted average sales= (0.67*104,000) + (0.33*52,000)

weighted average sales= 86,840

weighted average unitary variable cost= (0.67*32,200) + (0.33*6,800)

weighted average unitary variable cost= 23,818

Weighted average contribution margin ratio= (86,840 - 23,818) / 86,840

Weighted average contribution margin ratio= 0.726