What is the average contribution margin ratio


Question:

(Multiproduct firm) The Glass Menagerie makes small pressed resin ducks and ducklings. For every duck sold, the company sells five ducklings. The following information is available about the company's selling prices and cost:


Ducks


Ducklings

Selling price

$24


$12

Variable cost

12


8

Annual fixed cost


$288,000


a. What is the average contribution margin ratio?

b. Calculate the monthly break-even point if fixed cost is incurred evenly through-out the year. At the BEP, indicate how many units of each product will be sold monthly.

c. If the company wants to earn $96,000 pre-tax profit monthly, how many units of each product must it sell?

d. Company management has specified $31,680 as monthly net income, and the company is in a 40 percent tax bracket. However, marketing information has indicated that the sales mix has changed to one duck to nine ducklings. How much total revenue and what number of products must be sold to achieve the company's profit objective?

e. Refer to the original information. If the company can reduce variable cost per duck-ling to $4 by raising monthly fixed cost by $8,500, how will the break-even point change? Should the company make these changes? Explain your answer.

 

 

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Accounting Basics: What is the average contribution margin ratio
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