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
See it move
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
Variables
- Weighted average contribution margin (€)
- Contribution margin per unit of product 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
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?