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 $$6,000$ $$3,800$

Variable cost of goods sold $(3,780)(2,550)$

Manufacturing margin $$2,220$ $$1,250$

Variable selling expenses $(840)(680)$

Contribution margin $$1,380$ $$570$

Fixed expenses $(650)(230)$

Operating income $$730$ $$340$

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

Conquistador Hurricane

Sales unit volume $2,7002,000$

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

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Conquistador Hurricane

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Question Content Area

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.

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