Ralph Lauren sells suits and ties. Suits sell for $1000 each, and cost $300 in variable expenses to make each. Ties sell for $100, and cost $75 in variable expenses to make. Ralph's fixed expenses are $60,000. If 90 percent of his revenues are from suits, what is Ralph's weighted average contribution margin ratio?

Weighted average contribution margin ratio = $632.5

Explanation:

Giving the following information:

Suits:

Selling price = $1,000

Unitary variable cost = $300

Sales participation = 90%

Ties:

Selling price = $100

Unitary variable cost = $75

Sales participation = 10%

To calculate the weighted contribution ratio, we need to use the following formula:

Weighted average contribution margin ratio = weighted average selling price - weighted average unitary varialble cost

weighted average selling price = (1,000*0.9) + (100*0.1) = 910

weighted average unitary varialble cost = (300*0.9) + (75*0.1) = 277.5

Weighted average contribution margin ratio = 910 - 277.5 = $632.5