The controller of New Wave 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. Sales Cost of goods sold Gross profit Marketing expenses Operating income Home Theater Wireless Wireless Speakers Speakers Headphones Total $1,500,000 $1,200,000 $900,000 $3,600,000 (1,050,000) $ 450,000 $ 480,000 (720,000) $ 90,000 (810,000) (2,580,000) $1,020,000 (600,000) (120,000) (72,000) $ (150,000) $ 360,000 $ 18,000 (792,000) $ 228,000 In addition, the controller interviewed the vice president of marketing, who provided the following insight into the company's three products: The home theater speakers are an older product that is highly recognized in the marketplace. The wireless speakers are a new product that was just recently launched. The wireless headphones are a new technology that has no competition in the marketplace, and it is hoped that they will become an important future addition to the company's 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. Based on the information provided: a. Compute the ratio of gross profit to sales and the ratio of operating income to sales for each product. Please refer to the end-of-chapter Take It Further assignment TIF 4-3 Product Profitability. The controller of Tri Con Global Systems Inc. has developed a new costing system that traces the cost of activities to products. The new system is able to measure post-manufacturing activities, such as selling, promotional, and distribution activities, and allocate these activities to products in a manner that provides a more complete view of the company's product costs. This system produces better strategic information about the relative profitability of product lines. In the course of implementing the new costing system, the controller realized that the company's current- period GAAP net income would increase significantly if the new product cost information were used for inventory valuation on the financial statements. The controller has been under intense pressure to improve the company's net income, and this would be an easy and effective way for her to help meet the company's short-term net income goals. As a result, she has decided to use the new costing system to determine GAAP net income. REQUIREMENT 1: Compute the ratio of gross profit to sales and the ratio of operating income to sales for each product. REQUIREMENT 2: Write a brief (one-page) memo using the product profitability report and the calculations in (a) to make recommendations to management with respect to strategies for the three products. ACCEPTABLE LENGTH Submit a paper that is 1 page