the controller of Boom Box Sounds Inc. prepared the following product profitability report for management using activity-based costing methods for allocating both the factory overhead and the marketing expenses. As such, the controller has confidence in the accuracy of this report. In addition, the controller interviewed the vice president of marketing, who indicated that the floor loudspeakers were an older product that was highly recognized in the marketplace. The ribbon loudspeakers were a new product that was recently launched. The ribbon loudspeakers are a new technology that have no competition in the marketplace, and it is hoped that they will become an important future addition to the companys product portfolio. Initial indications are that the product is well received by customers. The controller believes that the manufacturing costs for all three products are in line with expectations.

1. Calculate the gross profit and income from operations to sales ratios for each product. 2. Write a memo using the product profitability report and the calculations in (1) to make recommendations to management with respect to strategies for the threeproducts.

Floor Bookshelf Ribbon Loudspeakers Loudspeakers Loudspeakers Totals Sales $1,500,000 $1,200,000 $900,000 $3,600,000 810,000 2,580,000 Less cost ofgoods sold 1,050,000 720,000 Gross profit 90,000 $1,020,000 450,000 480,000 600,000 Less marketing expenses 120,000 72,000 792,000 Income from operations (150,000) 360,000 18,000 228,000