Question
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
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 | $5,400.00 | $5,225.00 |
| 3 | Variable cost of goods sold | 3,290.00 | 3,500.00 |
| 4 | Manufacturing margin | $2,110.00 | $1,725.00 |
| 5 | Variable selling expenses | 1,030.00 | 889.00 |
| 6 | Contribution margin | $1,080.00 | $836.00 |
| 7 | Fixed expenses | 475.00 | 315.00 |
| 8 | Income from operations | $605.00 | $521.00 |
In addition, the following sales unit volume information for the period is as follows:
| Mountain Monster | Desert Dragon | |
| Sales unit volume | 5,200 | 5,050 |
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? |
Amount 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 |
Contribution Margin Report
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 |
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Final Question
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.
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
