Question

MacCloud Industries has two divisions-Standard and Premium. Each division has hundreds of different types of tennis racquets and tennis products. The following information is available:

Standard Division Premium Division Total
Sales $400000 $600000 $1000000
Variable costs $340000 420000
Contribution margin $60000 $180000
Total fixed costs $300000

Required:
a. What is the weighted-average contribution margin ratio?
b. What is the break-even point in dollars?

Answer 1

Answer and Explanation:

a. The computation of the weighted average contribution margin ratio is shown below:

The Contribution margin ratio is

= (Combined contribution ) ÷ (Sales)

= ($60,000 + $180,000) ÷ ($1,000,000)

= ($240,000) ÷ ($1,000,000)

= 0.24

b. Now the break even point in dollars is

= Fixed cost ÷ contribution margin ratio

= $300,000 ÷ 0.24

= $1,250,000

We simply applied the above formula so that the correct value could come

And, the same is to be considered