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JJ Pty Ltd is a multi-product company producing 40 000 units of product S and 10 000 units of product L annually. If product S has a contribution margin of $12 and product L has a contribution margin of $5, the weighted average contribution margin for the two products is:Group of answer choices$17.00.$10.60.$8.50.$7.50.

Question

JJ Pty Ltd is a multi-product company producing 40 000 units of product S and 10 000 units of product L annually. If product S has a contribution margin of 12andproductLhasacontributionmarginof12 and product L has a contribution margin of 5, the weighted average contribution margin for the two products is:Group of answer choices17.00.17.00.10.60.8.50.8.50.7.50.

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Solution

To calculate the weighted average contribution margin for the two products, you need to follow these steps:

  1. Calculate the total contribution for each product by multiplying the contribution margin by the number of units produced annually.

    For product S: 40,000 units * 12/unit=12/unit = 480,000 For product L: 10,000 units * 5/unit=5/unit = 50,000

  2. Add the total contributions together to get the total contribution for all products.

    Total contribution = 480,000(forS)+480,000 (for S) + 50,000 (for L) = $530,000

  3. Add the total number of units together to get the total units for all products.

    Total units = 40,000 units (for S) + 10,000 units (for L) = 50,000 units

  4. Divide the total contribution by the total units to get the weighted average contribution margin.

    Weighted average contribution margin = Total contribution / Total units = 530,000/50,000units=530,000 / 50,000 units = 10.60

So, the weighted average contribution margin for the two products is $10.60.

This problem has been solved

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