Question

The Snack Hut sells fudge, cashews, and caramel corn. They sold 10,000 units last year. Caramel corn outsold cashews by a ratio of 2 to 1. Sales of fudge were the same as sales of cashews. Fixed costs for The Snack Hut are $19,500. Additional information follows: Product Unit Sales Prices Unit Variable Cost Fudge $8.00 $4.00 Cashews $10.00 $5.00 Caramel Corn $6.00 $4.50 The weighted average contribution margin for the three products of The Snack Hut is O A. $2.44. O B. $12.00 O c. $48.00. OD. $3.00.

Answer 1

Answer

1 Sales mix

Fudge = 1/4 = .25

Cashews = 1/4 = .25

Caramel corn = 2/4 = .50

Contribution margin

Contribution margin per unit = selling price - variable cost per unit

Fudge = 8 - 4 = 4 per unit

Cashews = 10 - 5 = 5 per unit

Caramel corn = 6 - 4.5 = 1.5 per unit

Weighted average contribution margin = (contribution margin per unit of fudge × sales mix of fudge) + (contribution margin per unit of cashews × sales mix of cashews) + ( contribution margin per unit of caramel corn × sales mix of caramel corn)

Weighted average contribution margin

= ( 4 × .25 ) + ( 5 × .25 ) + ( 1.5 × .50 ) = 3

The weighted average contribution margin for the three product is $3.

Option D $ 3 is correct

The above calculations clearly indicate that the other options are incorrect.

2 break even point in unit

= fixed cost / contribution margin per unit

Variable cost per unit = 200 × 25% = $50

Increased selling price = 200 + 50% = $300

10% decrease in fixed cost = 120,000 - 10% = $108,000

Contribution margin per unit

= selling price - variable cost per unit

Contribution margin per unit = 300 - 50 = $250

Break even point in unit = 108,000 / 250 = 432 units

Option B 432 units is correct

The above calculations clearly indicate that other options are not correct.

3 total cost = units produced × average cost per unit

Units produced = 2,000

Average cost = $40

Total cost = 2000 × 40 = $80,000

Option D $80,000 is correct.

The above calculations clearly show that other options are incorrect.

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