Question

Product Profitability Analysis

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:

	Mountain Monster		Desert Dragon
Sales price	$6,000		$3,600
Variable cost of goods sold	3,780		2,410
Manufacturing margin	$2,220		$1,190
Variable selling expenses	1,080		686
Contribution margin	$1,140		$504
Fixed expenses	540		200
Income from operations	$600		$304

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

	Mountain Monster		Desert Dragon
Sales unit volume	1,900		1,300

a. Prepare a contribution margin by product report. Calculate the contribution margin ratio for each product as a whole percent.

PowerTrain Sports Inc.
Contribution Margin by Product
	Mountain Monster	Desert Dragon
	$	$
	$	$
	$	$
	%	%

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

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

Answer 1