Question

Power Train Sports Inc. manufactures and sells two styles of All Terrain Vehicles (ATV), 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: Mountain Monster Desert Dragon Sales price $5,325.00 Variable cost of goods sold Manufacturing margin $5,400.00 3,275.00 $2,125.00 937.00 $1,188.00 475.00 $713.00 3,200.00 $2,125.00 1,273.00 $852.00 Variable selling expenses Contribution margin Fixed expenses 310.00 Income from operations $542.00 In addition, the following sales unit volume information for the period is as follows: Mountain Monster 5.400 Desert Dragon 5.250 Sales unit volume 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 Power Train Sports Inc. regarding the relative profitability of the two products?

Answer 1

A.)
			Mountain	Desert
1.)			Monster	Dragon
2.)	Revenues		$29,160,000.00	$27,956,250.00
			(5400*5400)	(5325*5250)
3.)	Variable Cost of Goods Sold		$17,685,000.00	$16,800,000.00
			(3275*5400)	(3200*5250)
4.)	Manufacturing Margin		$11,475,000.00	$11,156,250.00
			(2) - (3)	(2) - (3)
5.)	Variable Selling Expense		$5,059,800.00	$6,683,250.00
			(937*5400)	(1273*5400)
6.)	Contribution margin		$6,415,200.00	$4,473,000.00
			(4) - (5)	(4) - (5)
7.)	Contribution margin Ratio		22.00%	16.00%
			(6)/(2)	(6)/(2)
B.)
	Contribution Margin		$6,415,200.00	$4,473,000.00
	Fixed Costs		$2,565,000.00	$1,627,500.00
	Income from Operations		$3,850,200.00	$2,845,500.00
	Net Income Percentage		13.20%	10.18%
			(Income/Revenue)	(Income/Revenue)
	In Relative Profitability, the profit percentage of "Mountain Moster"
	is greater than "Desert Dragon".
	Management should focus on selling more quantities of "Mountain
	Monster" as it has higher contribution margin and Net Income
	Percentage.
	Thanks & Regards
	Hoping for a Positive Response