Instructions: PowerTrain Sports Inc. manufactures and sells two styles of All Te
ID: 2410926 • Letter: I
Question
Instructions:
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
$5,300.00
$5,300.00
3
Variable cost of goods sold
3,210.00
3,350.00
4
Manufacturing margin
$2,090.00
$1,950.00
5
Variable selling expenses
1,030.00
1,102.00
6
Contribution margin
$1,060.00
$848.00
7
Fixed expenses
470.00
305.00
8
Income from operations
$590.00
$543.00
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?
Accounte descriptions:
Amount Descriptions
Contribution margin
Contribution margin ratio
Cost of goods sold
Fixed expenses
Gross profit
Manufacturing margin
Revenues
Variable cost of goods sold
Variable selling expenses
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.
PowerTrain Sports Inc.
Contribution Margin by Product
1
Mountain Monster
Desert Dragon
2
3
4
5
6
7
b. What advice would you give to the management of PowerTrain Sports Inc. regarding the relative profitability of the two products?
The Mountain Monster line provides the total contribution margin and the contribution margin ratio. If the sales mix were shifted more toward the line, the overall profitability of the company would increase.
Explanation / Answer
Solution a:
Solution 2:
The Mountain Monster line provides the highest total contribution margin and the highest contribution margin ratio. If the sales mix were shifted more toward the mountain monster line, the overall profitability of the company would increase.
Power Train Sports Inc. Contribution margin by product Particulars Mountain Monsters Desert Dragon Sales $25,440,000.00 $24,645,000.00 Variable cost of goods sold $15,408,000.00 $15,577,500.00 Variable selling expenses $4,944,000.00 $5,124,300.00 Contribution margin $5,088,000.00 $3,943,200.00 Contribution margin ratio 20% 16%