Question

eBook
Question Content Area
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:

Line Item Description Conquistador Hurricane
Sales price $5,000 $3,200
Variable cost of goods sold (3,150) (2,140)
Manufacturing margin $1,850 $1,060
Variable selling expenses (950) (548)
Contribution margin $900 $512
Fixed expenses (420) (200)
Operating income $480 $312
In addition, the following sales unit volume information for the period is as follows:

Line Item Description Conquistador Hurricane
Sales unit volume 2,400 1,800

Question Content Area
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
blank
Line Item Description Conquistador Hurricane

Sales
$Sales
$Sales

Variable cost of goods sold
Variable cost of goods sold
Variable cost of goods sold

Manufacturing margin
$Manufacturing margin
$Manufacturing margin

Variable selling expenses
Variable selling expenses
Variable selling expenses

Contribution margin
$Contribution margin
$Contribution margin

Contribution margin ratio
Contribution margin ratio
18
% Contribution margin ratio
16
%
Feedback Area
Feedback

Answer 1

To prepare a contribution margin by product report for Galaxy Sports Inc., we will calculate the sales, variable cost of goods sold, manufacturing margin, variable selling expenses, contribution margin, and contribution margin ratio for both the Conquistador and Hurricane ATVs. Here’s how the contribution margin report will look:

### Galaxy Sports Inc.
#### Contribution Margin by Product

| Line Item Description | Conquistador | Hurricane |
|---------------------------------|----------------------|---------------------|
| **Sales** | $5,000 × 2,400 = $12,000,000 | $3,200 × 1,800 = $5,760,000 |
| **Variable Cost of Goods Sold**| $3,150 × 2,400 = $7,560,000 | $2,140 × 1,800 = $3,852,000 |
| **Manufacturing Margin** | $12,000,000 - $7,560,000 = $4,440,000 | $5,760,000 - $3,852,000 = $1,908,000 |
| **Variable Selling Expenses** | $950 × 2,400 = $2,280,000 | $548 × 1,800 = $986,400 |
| **Contribution Margin** | $4,440,000 - $2,280,000 = $2,160,000 | $1,908,000 - $986,400 = $921,600 |
| **Contribution Margin Ratio** | ($2,160,000 / $12,000,000) × 100 = 18% | ($921,600 / $5,760,000) × 100 = 16% |

### Summary of Contribution Margin Report

- **Conquistador:**
- Sales: $12,000,000
- Variable Cost of Goods Sold: $7,560,000
- Manufacturing Margin: $4,440,000
- Variable Selling Expenses: $2,280,000
- Contribution Margin: $2,160,000
- Contribution Margin Ratio: 18%

- **Hurricane:**
- Sales: $5,760,000
- Variable Cost of Goods Sold: $3,852,000
- Manufacturing Margin: $1,908,000
- Variable Selling Expenses: $986,400
- Contribution Margin: $921,600
- Contribution Margin Ratio: 16%

This report provides a clear breakdown of the contribution margins for each product along with their contribution margin ratios as requested.