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Problem - Product Profitability Analysis
Outdoor Motor Sports Inc. manufactures and sells two styles of ATVs, 4-wheel drive (4WD) and 2-wheel drive (2WD), from a single manufacturing facility. The manufacturing facility operates at 100% of capacity. The following per unit information is available for the two products:
4WD
2WD
Sales price
Variable cost of goods sold
Manufacturing margin
Variable selling expenses
Contribution margin
Fixed expenses
Income from operations
$5,250
3,100
$2,150
890
$1,260
460
$800
$3,250
2,100
$1,150
500
$ 650
200
$450
In addition, the following unit volume information for the period is as follows:
Sales unit volume
2,500
Required -
a. Prepare a contribution margin by product report. Calculate the contribution margin ratio for each product as a whole percent, rounded to two decimal places.
b. What advice would you give to the management of Outdoor Motor Sports Inc. regarding the relative profitability of the two products?
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