Weighted average contribution margin

The weighted average contribution margin blends a multi-product range's different contribution margins into one figure, weighted by each product's share of the sales mix, to find a single break-even point.

What it is

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A café sells coffee and pastries in a 70/30 mix. Coffee earns €2.00 contribution per cup and pastries €3.00 per unit, so the weighted average is 0.70 times €2.00 plus 0.30 times €3.00, or €1.40 plus €0.90, €2.30. Fixed costs of €4,600 divided by €2.30 give a break-even volume of 2,000 units.

The formula

LaTeX

WACM = \sum_{i} CM_i \times w_i

Variables

$W A C M$: Weighted average contribution margin (€)
$C M_{i}$: Contribution margin per unit of product i (€)
$w_{i}$: Product i's share of the sales mix (proportion)

Blends the different contribution margins of a multi-product range into one figure, used to compute a single break-even point for the business.

Check yourself

PracticeCORE

A stall sells smoothies and salads in a mix of 60% smoothies and 40% salads. Smoothies earn a contribution margin of €1.50 per unit; salads earn €4.00 per unit. Fixed costs are €2,700 per month. What is the total monthly break-even volume in units?

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