Question

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 $4,400 $2,800
Variable cost of goods sold (2,770) (1,880)
Manufacturing margin $1,630 $920
Variable selling expenses (618) (528)
Contribution margin $1,012 $392
Fixed expenses (480) (160)
Operating income $532 $232
In addition, the following sales unit volume information for the period is as follows:

Conquistador Hurricane
Sales unit volume 2,900 2,100

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.

Answer 1

Product Sales Price Variable Cost of Goods Sold Manufacturing Margin Variable Selling Expenses Contribution Margin Fixed Expenses Operating Income Sales Unit Volume Contribution Margin Ratio

Conquistador $4,400 ($2,770) $1,630 ($618) $1,012 ($480) $532 2,900 23.0%

Hurricane $2,800 ($1,880) $920 ($528) $392 ($160) $232 2,100 14.0%

To calculate the contribution margin ratio for each product, divide the contribution margin by the sales price and multiply by 100%.

Contribution Margin Ratio for Conquistador:

Contribution Margin Ratio = (Contribution Margin / Sales Price) x 100%

Contribution Margin Ratio = ($1,012 / $4,400) x 100% = 23.0%

Contribution Margin Ratio for Hurricane:

Contribution Margin Ratio = (Contribution Margin / Sales Price) x 100%

Contribution Margin Ratio = ($392 / $2,800) x 100% = 14.0%