Question

Big Grouper Fishing Company has expanded and now also catches and sells big snappers. Big groupers still sell for $25 with variable costs per unit of $9. Big snappers sell for $18 with variable costs per unit of $10. Fixed costs are $4,200 for the Company. 75% of the fish sold are big groupers and 25% are big snappers. a. What is the weighted average contribution margin per unit? b. Using the weighted average contribution margin per unit, how many big groupers and big snappers does Big Grouper Fishing Company need to sell to make a $2,800 profit? c. Verify by preparing an income statement. d. Based on the income statement you just created, what is the weighted average contribution margin ratio? e. Use the weighted average contribution margin ratio to determine what amount of sales revenue is required for each type of fish to make a $2,800 profit.

Answer 1

• All working forms part of the answer
• Amounts are in $
• Requirement a

	Big Groupers	Big Snappers
Sale price	25	18
(-) Variable cost	9	10
Contribution margin per unit	$16	$8
Sales Mix	75%	25%
Weighted average contribution margin per unit	$12	$2

• Requirement b

A=12+2	Total Weighted Average contribution margin	$14
B	Fixed Cost	$4200
C	Target profit	$2800
D=B+C	Contribution margin required	$7000
E=D/A	Total units for target profit of $2800	500
F=E x 75%	Units of Big Groupers	375
G=E x 25%	Units of Big Snappers	125

• Requirement c

	Big Groupers	Big Snappers	Total
Units	375	125	500
Contribution margin per unit	16	8
Total contribution margin	6000	1000	$7000
Fixed Cost			$4200
Net Profit (=target profit)			$2800

• Requirement d

	Big Groupers	Big Snappers
Total contribution margin	$6000	$1000
Sales	$9375	$2250
Contribution margin ratio	64.00%	44.44%
Sales Mix	75%	25%
Weighted Average Contribution ratio	48.00%	11.11%

• Requirement e

A=48% + 11.11…%	Total Weighted Average contribution margin	59.11%
B	Fixed Cost	4200
C	Target profit	2800
D=B+C	Contribution margin required	7000
E=D/A	Total sales revenue required	$11842.11
F=E x 75%	sales Revenue Big Groupers	$8881.58
G=E x 25%	sales Revenue Big Snappers	$2960.53