Answer:
Galaxy Sports Inc Contribution Margin Report
Contribution margin is difference between the company's total sales and the variable cost. These two measures are dependent on the level of activities the company decides to operate at for both styles of vehicles.
The analysis below shows the contribution margin for the two products of the company.
Amount in $'000 Amount in $'000
Product Conquistador Hurricane
Sales price 60,000 46,000
Total variable costs
Variable cost of goods sold (36,000) (23,000)
Variable selling expenses <u> (9,000) </u> <u> (4600) </u>
Total Contribution margin 15,000 18,400
Contribution margin ratio 0.25 0.4
Number of units 10,000 4,000
Contribution margin per unit $1.50 $4.60
Based on the total contribution, Conquistador has a greater contribution than Hurricane. However, a further review of the Contribution margin ratio and contribution margin per unit shows that the contribution margin per unit of Hurricane is more than thrice the contribution margin per unit of Conquistador. Hence the company show reduce the volume of production for Conquistador and increase that of Hurricane as Hurricane is more profitable for the company.
Explanation:
The sales less the variable cost gives the contribution margin. The contribution margin less the fixed cost gives the net operating income.
Contribution margin ratio is the contribution margin divided by the sales. Total sales is the unit sales price multiplied by the volume.
