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Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $6,660,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%.
-The weighted-average contribution margin ratio is
A) 37%.
B) 40%.
C) 43%.
D) 50%.

Question

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Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $6,660,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%.
-The weighted-average contribution margin ratio is
A) 37%.
B) 40%.
C) 43%.
D) 50%.

Quizplus · Accepted Answer

To find the weighted-average contribution margin ratio, we need to multiply the contribution margin ratio of each division by its sales mix, then add them together. 
For Sporting Goods: 30% x 0.65 = 19.5%
For Sports Gear: 50% x 0.35 = 17.5%
Weighted-average contribution margin ratio: 19.5% + 17.5% = 37%.

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