Product Profitability Analysis
Galaxy Sports Inc. manufactures and sells two styles of All Terrain Vehicles (ATVs), the Conquistador and Hurricane, from a single manufacturing facility. The manufacturing facility operates at 100% of capacity. The following per-unit information is available for the two products:
| Conquistador | Hurricane | |||
| Sales price | $6,000 | $4,000 | ||
| Variable cost of goods sold | (3,780) | (2,680) | ||
| Manufacturing margin | $2,220 | $1,320 | ||
| Variable selling expenses | (1,080) | (720) | ||
| Contribution margin | $1,140 | $600 | ||
| Fixed expenses | (540) | (240) | ||
| Operating income | $600 | $360 | ||
In addition, the following sales unit volume information for the period is as follows:
| Conquistador | Hurricane | |||
| Sales unit volume | 2,100 | 1,500 | ||
a. Prepare a contribution margin by product report. Compute the contribution margin ratio for each product as a whole percent.
| Galaxy Sports Inc. | ||
| Contribution Margin by Product | ||
| Conquistador | Hurricane | |
| Sales | $_______ | $_______ |
| Variable cost of goods sold | ________ | ________ |
| Manufacturing margin | $________ | $________ |
| Variable selling expenses | ________ | ________ |
| Contribution margin | $_________ | $________ |
| Contribution margin ratio | ________ | ________ |
b. What advice would you give to the management of Galaxy Sports Inc. regarding the profitability of the two products?
The Conquistador line provides the largest total contribution margin and the largest contribution margin ratio. If the sales mix were shifted more toward the Conquistador line, the overall profitability of the company would increase.
a. Prepare a contribution margin by product report. Compute the contribution margin ratio for each product as a whole percent.
| Galaxy Sports Inc. | ||
| Contribution Margin by Product | ||
| Conquistador | Hurricane | |
| Sales | 12600000 | 6000000 |
| Variable cost of goods sold | 7938000 | 4020000 |
| Manufacturing margin | 4662000 | 1980000 |
| Variable selling expenses | 2268000 | 1080000 |
| Contribution margin | 2394000 | 900000 |
| Contribution margin ratio | 19% | 15% |
b. What advice would you give to the management of Galaxy Sports Inc. regarding the profitability of the two products?
The Conquistador line provides the largest total contribution margin and the largest contribution margin ratio. If the sales mix were shifted more toward the Conquistador line, the overall profitability of the company would increase.
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