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	$5,200.00	$5,300.00
3	Variable cost of goods sold	3,240.00	3,450.00
4	Manufacturing margin	$1,960.00	$1,850.00
5	Variable selling expenses	712.00	1,108.00
6	Contribution margin	$1,248.00	$742.00
7	Fixed expenses	470.00	320.00
8	Income from operations	$778.00	$422.00

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

	Mountain Monster	Desert Dragon
Sales unit volume	4,800	4,650

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

a) Calculation of contribution margin
Particulars			Mountain monster		Desert dragon
Sale 5200*4800 , 5300*4650 (a)			$            2,49,60,000.00		$           2,46,45,000.00
variable cost of goods sold			$            1,55,52,000.00		$           1,60,42,500.00
Manufacturing margin			$                94,08,000.00		$              86,02,500.00
variable selling exp			$                34,17,600.00		$              51,52,200.00
Contribution margin (b)			$                59,90,400.00		$              34,50,300.00
Contribution margin ratio (b)/(a)			24%		14%
b) mountain monster contribution margin in higher than desert dragon
in mountain monster profitability of the company will increase