Muscle Beach, Inc., makes three models of high-performance weight-training benches. Current operating data are summarized here:

	MegaMuscle			PowerGym			ProForce
Selling price per unit	$	139		$	192		$	295
Contribution margin per unit		45			76			56
Monthly sales volumeunits		3,100			2,030			930
Fixed expenses per month			Total of $327,900

a. Calculate the contribution margin ratio of each product. (Round your answers to 1 decimal place.)

b. Calculate the firm's overall contribution margin ratio. (Round your answer to 1 decimal place.)

c. Calculate the firm's monthly break-even point in sales dollars. (Round your intermediate calculations to 1 decimal place.)

d. Calculate the firm's monthly operating income.

e-1. Management is considering the elimination of the ProForce model due to its low sales volume and low contribution margin ratio. As a result, total fixed expenses can be reduced to $283,720 per month. Assuming that this change would not affect the other models, what would be the effect on net operating income.

e-2. Would you recommend the elimination of the ProForce model?

f-1. Assume the same facts as in requirement e-1. Assume also that the sales volume for the PowerGym model will increase by 509 units per month if the ProForce model is eliminated. What would be the effect on operating income.

f-2. Would you recommend eliminating the ProForce model?

ANSWER SHEET

Explanation:

a.

	MegaMuscle			PowerGym			ProForce
Selling price per unit (A)	$	???		$	???		$	???
Contribution margin per unit (B)		??			??			??
Contribution margin ratio (B / A)		???	%		???	%		???	%

b.

	MegaMuscle				PowerGym				ProForce
Monthly sales volume		????	units			????	units			???	units
Selling price per unit	$	???			$	???			$	???
Sales	$	??????			$	??????			$	??????
Total sales = $?????????
Monthly sales volume		????	units			????	units			???	units
Contribution margin per unit	$	??			$	??			$	??
Contribution margin	$	??????			$	??????			$	?????

Total contribution margin = $?????

Overall CM ratio = Total CM / Total sales

= $?????? / $??????? = ???% (rounded)

c.

Break-even point = Fixed expenses / Overall CM ratio

= $?????? / ???% = $???????

d.

Operating income = Total CM Fixed expenses

= $?????? $????? = $?????

e.

The ProForce model (should or should not ???) be eliminated, because the ???????????????? foregone would exceed the reduction in fixed expenses, as follows:

Cost: Contribution margin foregone ($?? ??? units)		(?????	)
Benefit: Reduction in fixed expenses	$	?????
Net operating income foregone by eliminating ProForce model	$	(?????	)

f.

The ProForce model (should or should not ???) be eliminated, because the reduction in ??????????? and the increased ??????????????? for the PowerGym model would exceed the contribution margin foregone, as follows:

Benefit: Contribution margin foregone (ProForce: $??? ??? units)	$	(??????	)
Cost: Increased contribution margin (PowerGym: $?? ??? units)		?????
Benefit: Reduction in fixed expenses		?????
Net benefit of eliminating ProForce model	$	??????