December 2012 #1

Hello, I am having some problem with part (a) and part (b), particularly due to the formula I used to find the weighted average c/s ratio.

My formula was: contribution per mix/revenue per mix. My dad told me his lecturer back then told him to use this approach.

So, I found the contribution for product C, S and D and they are $60, $56 and $28 respectively.

I then found a sales mix, this was (20,000 units of C), (22,000 units of S) and (26,000 units of D). This could be expressed 20,000:22,000:26,000= 68,000.

Then I started to calculate the contribution per mix as follows:
(20000/68000 * $60) + (22000/68000 * $56) + (26000/68000 * $28)= $46.47

Next, I calculated the revenue per mix as follows:
(20000/68000 * $110) + (22000/68000 * $160) + (26000/68000 * $120)= $130

Then I divided $46.47 by $130 and got 0.357461538. So I rounded it off to 2 decimal places and it turned out to become 0.36 or 36% and the examiner’s answer was 35.75%.

Obviously this difference will result in a different figure for part (b) than the examiners one and mines turned out to be $1,777,778.

Is my answer wrong because of the little difference in the weighted average c/s ratio or that the formula my dad told me is wrong.

Will I loose any mark most IMPORTANTLY? 🙁