Toy craft produces toy alligators and toy dolphins. Fixed costs are Rs1,290,000 per year. Sales revenue and variable costs per unit are as follow:
| Particulars | Alligators (in Rs) | Dolphins (in Rs) |
| Sales price | 20 | 25 |
| Variable Price | 8 | 10 |
Suppose the company currently sells 140,000 alligators per year and 60,000 dolphins per year (Sales Mix Percentage 14:6). Assuming the sales mix stays constant, answer the following question.
What will be the weighted average contribution margin ?
Answer & explanation
Correct answer: option 1
| Particulars | Alligators (in Rs) | Dolphins (in Rs) | Total |
| Total Units | 1,40,000 | 60,000 | 2,00,000 |
| Sales price | 20 | 25 | |
| Variable Price | 8 | 10 | |
| Sales | 28,00,000 | 15,00,000 | 43,00,000 |
| Variable Cost | 11,20,000 | 6,00,000 | 17,20,000 |
| Contribution Margin (Sales-Variable Cost) | 16,80,000 | 9,00,000 | 25,80,000 |
| Less Fixed Cost | 12,90,000 | ||
| Net Income | 12,90,000 |
Weighted Average Contribution Margin= Total Contribution/ Total Units
25,80,000/2,00,000=Rs 12.90
Break Even Point= Fixed Cost/Weighted Average Contribution =12,90,000/12.90=1,00,000 Units
Allocating total units to each products based on Expected Units Proportion=14:6
Alligators to be produced for breakeven= 1,00,000*14/20=70,000 Units
Dolphins to be produced for breakeven=1,00,000*6/20=30,000 Units
So toy crafts has to produce 70,000 toy alligators and 30,000 toy dolphins for breakeven.