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:

Conquistador Hurricane

Sales price $6,400 $4,200

Variable cost of goods sold (4,030) (2,810)

Manufacturing margin $2,370 $1,390

Variable selling expenses (1,218) (760)

Contribution margin $1,152 $630

Fixed expenses (540) (250)

Operating income $612 $380

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

Conquistador Hurricane

Sales unit volume 2,900 2,200

a.Prepare acontribution marginby product report. Compute the contribution margin ratio for each product as a whole percent.

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

The ......................................line provides the largest total contribution margin and the largest contribution margin ratio. If the sales mix were shifted more toward the.....................................

line, the overall profitability of the company would increase.