using product profitability report to guide strategic decisions

Project Description:

using product profitability report to guide strategic decisions
the controller of fidelity sounds inc. prepared the following product profitability report for management, using activity-based costing methods for allocating both the factory overhead and marketing expenses. as such, the controller has confidence in the accuracy of this report. in addition, the controller interviewed the vice president of marketing, who indicated that the floor loudspeakers were an older product that was highly recognized in the marketplace. the ribbon loudspeakers were a new product that was recently launched. the ribbon loudspeakers are a new technology that have no competition in the marketplace, and it is hoped that they will become an important future addition to the company’s product portfolio. initial indications are that the product is well received by the customers. the controller believes that the manufacturing costs for all three products are in line with expectations.
floor loudspeakers bookshelf loudspeakers ribbon loudspeakers totals
sales $1,200,000 $ 800,000 $ 600,000 $ 2,600,000
less cost of goods sold 816,000 448,000 552,000 1,816,000
gross profit $ 384,000 $ 352,000 $ 48,000 $ 784,000
less marketing expenses 480,000 72,000 42,000 594,000
income from operations $ (96,000) $ 280,000 $ 6,000 $ 190,000

1. calculate the gross profit and income from operations to sales ratios for each product?
2. write a memo using the product profitability report and calculations in (1) to make recommendations to management with respect to strategies for the three products.
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