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 DescriptionConquistadorHurricaneSales price$$6,000$$$11,500$Variable cost of goods sold$(3,600)(5,750)$Manufacturing margin$$2,400$$$5,750$Variable selling expenses$(900)(1,150)$Contribution margin$$1,500$$$4,600$Fixed expenses$(750)(1,000)$Operating income$$750$$$3,600$

In addition, the following sales unit volume information for the period is as follows:

Line Item DescriptionConquistadorHurricaneSales unit volume$10,0004,000$

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

blankLine Item DescriptionConquistadorHurricane

Contribution marginCost of goods soldDirect laborGross profitSales

$$-$ Select $-$$$-$ Select $-$

Fixed cost of goods soldFixed selling expensesManufacturing marginSalesVariable cost of goods sold

$-$ Select $--$ Select $-$

Contribution marginCost of goods soldFixed manufacturing costsGross profitManufacturing margin

$$-$ Select $-$$$-$ Select $-$

Fixed cost of goods soldFixed selling expensesManufacturing marginSalesVariable selling expenses

$-$ Select $--$ Select $-$

Contribution marginCost of goods manufacturedFixed manufacturing costsFixed salesManufacturing margin

$$-$ Select $-$$$-$ Select $-$

Contribution margin ratioFixed manufacturing costsFixed salesManufacturing marginVariable cost of goods sold

$-$ Select $-\%-$ Select $-\%$

Question Content Area

b$.$ What advice would you give to the management of Galaxy Sports Inc. regarding the profitability of the two products?

The fill in the blank $1$ of $2$

ConquistadorHurricane

line provides the largest total contribution margin and the largest contribution margin ratio. If the sales mix were shifted more toward the fill in the blank $2$ of $2$

ConquistadorHurricane

line, the overall profitability of the company would increase.