A product sells for $5, and has unit variable costs of $3. The annual sales units for this product are 5,000. The firm has a total annual sales revenue of $60,000. When performing multiproduct break-even analysis, what is the weighted contribution of this product?
A) 0.133
B) 0.083
C) 0.167
D) 0.417
E) $1.667

Question

Quizplus · Accepted Answer

Weighted Contribution = (Unit Contribution margin of the product * Sales mix percentage)
Sales mix percentage = (Sales units of the product / Total sales units)

Unit contribution margin = (Selling Price per unit - Unit Variable cost)

Unit contribution margin = ($5 - $3) = $2

Sales mix percentage = (5,000/5,000) = 1 or 100%

Weighted Contribution = ($2 * 100%) = $2

Total contribution of all products = Total Revenue - Total Variable Costs
Total Variable Costs = (Total Sales units * Unit Variable cost)
Total Variable Costs = (5,000 * $3) = $15,000
Total contribution = ($60,000 - $15,000) = $45,000

Weighted contribution percentage = (Weighted contribution / Total contribution)
Weighted contribution percentage = ($2 / $45,000) = 0.044 or 4.4%

Therefore, the weighted contribution of this product is 0.167 or 16.7%.

A Product Sells for $5, and Has Unit Variable Costs