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20 April, 14:06

Clipper Company sells two types of nail clippers. One focuses on the economy oriented customer and the other aims to satisfy the high-end clientele. The economy clipper cost $3 and has a sales price of $5. The high-end model costs $9 and sales for $12. Fixed costs associated with this product line amount to $35,880. Economy clippers constitute 70 percent of the market with the remaining 30 percent being high-end clippers. Based on this information what is the weighted average contribution margin?

a. $1.00

b. $1.80

c. $2.80

d. $2.30

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Answers (1)
  1. 20 April, 15:42
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    The weighted average contribution margin is d. $2.30

    Explanation:

    Contribution margin per unit of the economy clipper = Sales price - Cost per unit = $5 - $3 = $2

    Contribution margin per unit of the high-end model = Sales price - Cost per unit = $12 - $9 = $3

    Economy clippers constitute 70 percent of the market with the remaining 30 percent being high-end clippers.

    The weighted average contribution margin = Contribution margin of the economy clipper x 70% + Contribution margin of the high-end model x 30% = $2 x 70% + $3 x 30% = $2.3
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