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14 May, 21:47

Ralph Lauren sells suits and ties. Suits sell for $1000 each, and cost $300 in variable expenses to make each. Ties sell for $100, and cost $75 in variable expenses to make. Ralph's fixed expenses are $60,000. If 90 percent of his revenues are from suits, what is Ralph's weighted average contribution margin ratio?

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  1. 14 May, 23:20
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    Weighted average contribution margin ratio = $632.5

    Explanation:

    Giving the following information:

    Suits:

    Selling price = $1,000

    Unitary variable cost = $300

    Sales participation = 90%

    Ties:

    Selling price = $100

    Unitary variable cost = $75

    Sales participation = 10%

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

    Weighted average contribution margin ratio = weighted average selling price - weighted average unitary varialble cost

    weighted average selling price = (1,000*0.9) + (100*0.1) = 910

    weighted average unitary varialble cost = (300*0.9) + (75*0.1) = 277.5

    Weighted average contribution margin ratio = 910 - 277.5 = $632.5
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