Question
In: Accounting
Ducet Sports Inc. manufactures and sells two styles of All Terrain Vehicles (ATVs), the Monster and...
Ducet Sports Inc. manufactures and sells two styles of All Terrain Vehicles (ATVs), the Monster and 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: 1 Monster Dragon 2 Sales price $5,400.00 $5,300.00 3 Variable cost of goods sold 3,255.00 3,400.00 4 Manufacturing margin $2,145.00 $1,900.00 5 Variable selling expenses 1,065.00 946.00 6 Contribution margin $1,080.00 $954.00 7 Fixed expenses 485.00 305.00 8 Income from operations $595.00 $649.00 In addition, the following sales unit volume information for the period is as follows: Monster Dragon Sales unit volume 5,300 5,150 Required: a. Prepare a contribution margin by product report. Calculate the contribution margin ratio for each. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. b. What advice would you give to the management of Ducet Sports Inc. regarding the relative profitability of the two products?
Solutions
Expert Solution
Ans.
a)
| Monster | Dragon | ||
| 1 | Revenues | $28,620,000.00 | $27,295,000.00 |
| (5400*5300) | (5300*5150) | ||
| 2 | Variable Cost of Goods Sold | $17,251,500.00 | $17,510,000.00 |
| (3255*5300) | (3400*5150) | ||
| 3 | Manufacturing Margin | $11,368,500.00 | $9,785,000.00 |
| (1) - (2) | (1) - (2) | ||
| 4 | Variable Selling Expense | $5,644,500.00 | $4,871,900.00 |
| (1065*5300) | (1900*5150) | ||
| 5 | Contribution margin | $5,724,000.00 | $4,913,100.00 |
| (3) - (4) | (3) - (4) | ||
| 6 | Contribution margin Ratio | 20.00% | 18.00% |
| (5)/(1) | (5)/(1) |
b)
| Contribution margin (a) | $5,724,000.00 | $4,913,100.00 |
| Fixed Cost (b) | $2,570,500.00 | $1,570,750.00 |
| (485*5300) | (305*5150) | |
| Income from Operation (a-b) | $3,153,500.00 | $3,342,350.00 |
| Net Income Percentage | 11.02% | 12.25% |
| (Income / Revenue) | (Income / Revenue) |
As per Relative Profitability of the two products, the profit percentage of "Dragon" is greater than "Monster".
Management should focus on selling more quantities of "Dragon" as it has higher Net Income Percentage.
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