Question

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 $5,400.00 $5,225.00 3 Variable cost of goods sold 3,290.00 3,500.00 4 Manufacturing margin $2,110.00 $1,725.00 5 Variable selling expenses 1,030.00 889.00 6 Contribution margin $1,080.00 $836.00 7 Fixed expenses 475.00 315.00 8 Income from operations $605.00 $521.00 In addition, the following sales unit volume information for the period is as follows: Mountain Monster Desert Dragon Sales unit volume 5,200 5,050 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?

Answer 1

Ans-a- Power Train Sports Inc.

Contribution Margin by Product

	Mountain Monster	Desert Dragon
Revenue	$28,080,000 (5,400*5,200)	$26,386,250 (5,225*5,050)
Less: Variable cost of goods sold	17,108,000 (3,290*5,200)	17,675,000 (3,500*5,050)
Manufacturing margin	10,972,000	8,711,250
Variable selling expenses	5,356,000 (1,030*5,200)	4,489,450 (889*5,050)
Contribution margin	5,616,000	4,221,800
Contribution margin ratio	20%	16%

Cotribution Margin Ratio= Contribution Margin/ Revenues

Ans-b- The Mountain Monster line provides the largest total contribution margin and the largest contribution margin ratio. If the sales mix were shifted more towards the Mountain Monster line, the overall profitability of the company would increase.