Getting familiar with the weighted-average contribution margin per unit helps business owners analyze profit, pricing and product offerings. Each product has its own contribution margin. Calculating the weighted average depends on percent of sales of each company product. Discovering that the margin is low can inspire a business owner to raise the price or eliminate the product altogether. High-average per unit margins indicate that costs are being adequately managed and the price point supports healthy revenues.
Instructions
1. Compute the contribution margin for each product. Contribution margin equals sales price minus the variable costs per unit. For example, your company sells still photo and video cameras. For the video cameras, the price is $400 and the variable costs are $200. The contribution margin is $200. The video price is $800 and its variable costs are $500. The contribution margin is $300. The company sells the cameras in equal ratio.
2. Multiply the contribution margin figure by the relevant percentage of sales figure. For the still camera, the calculation is $200 X 50% = $100. For the video camera, the equation is $300 X 50% = $150.
3. Add the two resulting figures together to attain the weighted average. In this example, add $100 plus $150 to get $250.
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