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Speicher sells sports shoes and formal shoes. Sports shoes sell for $110 each and cost $50 in variable expenses to make. Formal shoes sell for $220 and cost $100 in variable expenses to make. Speicher’s fixed expenses are $50,000. If 35% of his revenues are from sports shoes, what is Speicher’s weighted average contribution margin ratio? Provide your answer in decimal form (i.e. 65.2% = 0.652) and to three decimal places. Do not round intermediary calculations.

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Answer:

weighted contribution margin ratio = 0.545

Explanation:

contribution margin of sport shoes = $110 - $50 = $60

contribution margin ratio of sport shoes = $60 / $110 = 0.545454

contribution margin of formal shoes = $220 - $100 = $120

contribution margin ratio of sport shoes = $120 / $220 = 0.545454

35% of total revenues come from sport shoes

weighted contribution margin ratio (it is the same for both products) = 0.545454 = 0.545

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