Exercise 4-16 Wilde Home & Garden is organized into three departments. The follo
ID: 2423291 • Letter: E
Question
Exercise 4-16
Wilde Home & Garden is organized into three departments. The following sales and cost data are available for the prior year: What is the weighted average contribution margin ratio? (Round answer to 4 decimal places, e.g. 0.5212.) What level of sales is needed to earn a profit of $584,000 assuming the current mix? (Round answer to the nearest whole dollar, e.g. 5,275.) What is the contribution margin ratios of the three departments? (Round answers to 2 decimal places, e.g. 15.25.) Wilde Home & Garden places an advertisement in the local paper each week. All else equal, which department would you emphasize in the advertisement?Explanation / Answer
Calculation of weighted average Contribution margin ratio of 3 departments:
Contribution margin ratio = Contribution margin / Sales
A B C
Contribution margin 182000 327000 210000
Sales 294000 894000 972000
Contribution margin ratio 61.94% 36.58% 21.60%
Calculation of sales mix % of products :
= Sales Revenue of each product / Total sales revenue * 100
sales mix % of A = 294000 / 2160000 * 100 = 13.62%
sales mix % of B = 894000 / 2160000 * 100 = 41.38%
sales mix % of C = 972000 / 2160000 * 100 = 45%
Calculation of weighted contribution margin ratio:
= Sales mix % of Products * Contribution margin ratio of products
=61.94 * 13.62 + 36.58 * 41.38 + 21.60 * 45
= 33.29%
Level of sales needed to earn a profit of $584000 assuming current mix:
Profit required to be earn $ 584000
Contribution required = 584000 + 250200 = $834200
Sales = Contribution / weighted Average contribution margin ratio
Sales = 834200 / 33.29% = $2505857.61
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.