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: Sales price Variable cost of goods sold Manufacturing margin Variable selling expenses Contribution margin Fixed expenses Operating income Sales unit volume In addition, the following sales unit volume information for the period is as follows: Conquistador $6,400 (4,030) $2,370 (1,026) $1,344 (630) $714 Conquistador $ The 2,600 Galaxy Sports Inc. Contribution Margin by Product would increase. Hurricane $4,000 (2,680) $1,320 a. Prepare a contribution margin by product report. Compute the contribution margin ratio for each product as a whole percent. % Conquistador Hurricane Hurricane $ (600) $720 (290) $430 % 1,900 b. What advice would you give to the management of Galaxy Sports Inc. regarding the profitability of the two products? 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
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: Sales price Variable cost of goods sold Manufacturing margin Variable selling expenses Contribution margin Fixed expenses Operating income Sales unit volume In addition, the following sales unit volume information for the period is as follows: Conquistador $6,400 (4,030) $2,370 (1,026) $1,344 (630) $714 Conquistador $ The 2,600 Galaxy Sports Inc. Contribution Margin by Product would increase. Hurricane $4,000 (2,680) $1,320 a. Prepare a contribution margin by product report. Compute the contribution margin ratio for each product as a whole percent. % Conquistador Hurricane Hurricane $ (600) $720 (290) $430 % 1,900 b. What advice would you give to the management of Galaxy Sports Inc. regarding the profitability of the two products? 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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**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 | $6,400 | $4,000 |
| Variable cost of goods sold | (4,030) | (2,680) |
| Manufacturing margin | $2,370 | $1,320 |
| Variable selling expenses| (1,026) | (600) |
| Contribution margin | $1,344 | $720 |
| Fixed expenses | (630) | (290) |
| Operating income | $714 | $430 |
In addition, the following sales unit volume information for the period is as follows:
| | Conquistador | Hurricane |
|--------------------------|--------------|-----------|
| Sales unit volume | 2,600 | 1,900 |
---
**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 |
|--------------------------|--------------|-----------|
| 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 __________ 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.
Expert Solution
Step 1
CONTRIBUTION MARGIN
Contribution margin is Computed by Deducting Total Variable Cost From Total Sales.
Contribution Margin Ratio is Computed by Dividing Total Sale from Total Contribution Margin.
Contribution margin ratio is Also Known as Profit volume Ratio.
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