Product Profitability Analysis

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:

	Mountain Monster		Desert Dragon
Sales price	$5,000		$3,200
Variable cost of goods sold	3,150		2,140
Manufacturing margin	$1,850		$1,060
Variable selling expenses	900		452
Contribution margin	$950		$608
Fixed expenses	450		240
Income from operations	$500		$368

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

	Mountain Monster		Desert Dragon
Sales unit volume	3,300		2,400

a. Prepare a contribution margin by product report. Calculate the contribution margin ratio for each product as a whole percent.

Powertrain Sports Inc.
Contribution Margin by Product
	Mountain Monster	Desert Dragon
	$	$
	$	$
	$	$
	%	%

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

The (mountain monster/desert dragon) line provides the largest total contribution margin and the largest contribution margin ratio. If the sales mix were shifted more toward the (mountain monster/desert dragon) line, the overall profitability of the company would increase.