Question

Tiago makes three models of camera lens. Its product mix and contribution margin per unit follow:

Percentage of Unit sales Contribution Margin per unit
Lens A 25 % $38
Lens B 40 30
Lens C 35 43
determine the new weighted-average contribution margin per unit. determine the number of units of each product that tiago must sell to break even if fixed costs are $187,000. suppose the product mix has shifted to 40%/30%/30%.

Answer 1

To determine the new weighted-average contribution margin per unit, multiply the contribution margin per unit of each lens by its corresponding percentage of unit sales and add up the weighted contribution margins. To find the number of units needed to break even, divide the total fixed costs by the weighted-average contribution margin per unit.

Step-by-step explanation:

To determine the weighted-average contribution margin per unit, you need to multiply the contribution margin per unit of each lens by its corresponding percentage of unit sales. Then, you add up the weighted contribution margins. In this case, Lens A has a contribution margin of $38 and accounts for 25% of unit sales, Lens B has a contribution margin of $30 and accounts for 40% of unit sales, and Lens C has a contribution margin of $43 and accounts for 35% of unit sales.

To calculate the weighted-average contribution margin per unit:

($38 x 0.25) + ($30 x 0.40) + ($43 x 0.35) = $13.25

Tiago needs to sell enough units of each product to cover the fixed costs and break even. To calculate the number of units, you divide the total fixed costs by the weighted-average contribution margin per unit:

$187,000 / $13.25 = 14,094 units (approximately).