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Product profitability analysis Power Train 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............................. $ 5,400 $5,250 Variable cost of goods sold........ 3,285 3,400 Manufacturing margin............ $2,115 $1,850 Variable selling expenses............ 1,035 905 Contribution margin.................. $1,080 $ 945 Fixed expenses........................ 485 310 Income from operations............. $ 595 $ 635 In addition, the following sales unit volume information for the period is as follows: Mountain Monster Desert Dragon Sales unit volume 5,000 4,850 A. Prepare a contribution margin by product report. Calculate the contribution margin ratio for each. B. What advice would you give to the management of Power Train Sports Inc. regarding the relative profitability of the two products?

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Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207

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Chapter
Section
BuyFindarrow_forward

Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207
Chapter 20, Problem 20.12EX
Textbook Problem
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Product profitability analysis

Power Train 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............................. $ 5,400 $5,250
Variable cost of goods sold........ 3,285 3,400
Manufacturing margin............ $2,115 $1,850
Variable selling expenses............ 1,035 905
Contribution margin.................. $1,080 $ 945
Fixed expenses........................ 485 310
Income from operations............. $ 595 $ 635

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

  Mountain Monster Desert Dragon
Sales unit volume 5,000 4,850
  1. A. Prepare a contribution margin by product report. Calculate the contribution margin ratio for each.
  2. B. What advice would you give to the management of Power Train Sports Inc. regarding the relative profitability of the two products?

(a)

To determine

Variable Costing

Managers frequently use variable costing for internal purposes for taking decision making. The cost of goods manufactured includes direct materials, direct labor, and variable factory overhead. Fixed factory overhead treated as period (fixed) expense.

Contribution Margin

Contribution margin is the excess of manufacturing margin above selling and administrative expenses. Contribution margin is calculated by deducting variable cost from sales or deducting variable selling and administrative expenses from manufacturing margin.

To Prepare: The contribution margin and contribution margin ratio for each product.

Explanation of Solution

Prepare the contribution margin and contribution margin ratio for each product as shown below:

Particulars Mountain Monster Desert Dragon
Revenues (A) $27,000,000 $25,462,500
Less: Variable cost of goods sold $16,425,000 $16,490,000
...

(b)

To determine

To State: The advice regarding to the relative profitability of two products.

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Chapter 20 Solutions

Financial & Managerial Accounting
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