Question

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	$5,000		$3,400
Variable cost of goods sold	(3,150)		(2,280)
Manufacturing margin	$1,850		$1,120
Variable selling expenses	(750)		(576)
Contribution margin	$1,100		$544
Fixed expenses	(520)		(220)
Operating income	$580		$324

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

	Conquistador		Hurricane
Sales unit volume	3,600		2,600

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
	$	$
	$	$
	$	$
	%	%

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.

Answer 1

Contribution Margin By Product Sales (Units * Selling Price Variable cost of Goods Sold (unit s* Cost) Manufacturing Margin Variable Selling Expenses (Units *cost per Unit) Contribution Margin Contribution Margin ratio Conquistabor Hurricane 18000000 8840000 11340000 5928000 66600001 2912000 | 2700000 1497600 3960000 1414400 22.00% 16.00% Contribution Margin Ratio = Controbution Margin / Sales Revenue Advice The Conquistador Line Provides the Largest total Contribution Margin and the Largest Contribution Margin Ratio . If the Sales mix were shifted more towards the Conquistador Line ,the overall Profitability of the Company will increase