Question

2nd time. The answers were wrong the first time.

****Please pay attention to the numbers.***

PowerTrain Sports Inc. manufactures and sells two styles of All Terrain Vehicles (ATVs), the Mountain Monster and Desert Dragon, from a single manufacturing facility. The manufacturing facility operates at 100% of capacity. The following per-unit information is available for the two products:

1		Mountain Monster	Desert Dragon
2	Sales price	$5,000.00	$5,275.00
3	Variable cost of goods sold	3,275.00	3,500.00
4	Manufacturing margin	$1,725.00	$1,775.00
5	Variable selling expenses	225.00	825.00
6	Contribution margin	$1,500.00	$950.00
7	Fixed expenses	485.00	310.00
8	Income from operations	$1,015.00	$640.00

In addition, the following sales unit volume information for the period is as follows:

	Mountain Monster	Desert Dragon
Sales unit volume	4,900	4,750

Required:

a.

Prepare a contribution margin by product report. Calculate the contribution margin ratio for each. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.

b.

What advice would you give to the management of PowerTrain Sports Inc. regarding the relative profitability of the two products?

Amount Descriptions

Contribution margin

Contribution margin ratio

Cost of goods sold

Fixed expenses

Gross profit

Manufacturing margin

Revenues

Variable cost of goods sold

Variable selling expenses

a. Prepare a contribution margin by product report. Calculate the contribution margin ratio for each. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.

PowerTrain Sports Inc.

Contribution Margin by Product

1		Mountain Monster	Desert Dragon
2
3
4
5
6 7
	b. What advice would you give to the management of PowerTrain Sports Inc. regarding the relative profitability of the two products? The Mountain Monster line provides the (larger,Smaller,Same?)total contribution margin and the (larger,smaller,same?)  contribution margin ratio. If the sales mix were shifted more toward the (Deser Dragon,MountainMonster?) line, the overall profitability of the company would increase.

Answer 1

Solution a:

PowerTrain Sports Inc.
Contribution Margin by Product
Event	Particulars	Mountain Monster	Desert Dragon
1	Revenues	$24,500,000.00	$25,056,250.00
3	Variable costs:
4	Variable cost of goods sold	$16,047,500.00	$16,625,000.00
5	Variable selling expenses	$1,102,500.00	$3,918,750.00
6	Contribution margin	$7,350,000.00	$4,512,500.00
7	Contribution margin ratio	30%	18%

Solution b:

The Mountain Monster line provides the larger total contribution margin and the larger contribution margin ratio. If the sales mix were shifted more toward the MountainMonster line, the overall profitability of the company would increase.