Caylor Company is a biotechnology firm that specializes in developing drugs based on monoclonal antibodies. The firm has obtained FDA approval for two drugs: RX-560 and VR-990. RX-560 is a recent approval and commands a premium price. In contrast, competition from superior formulations and from generic drugs is eroding the market for VR-990.
The firm provides you with the following information from its most recent income statement. While the income statement conforms to Generally Accepted Accounting Principles, management wishes to redo the income statement to provide better information for making product-level decisions.

You also collect the following product-specific information:

Finally, you determine that Caylor spent a total of $2,500,000 on fixed costs common to both products (i.e., the $2,500,000 is not directly traceable to either product). Of this amount, Caylor spent $1,300,000 on manufacturing costs and the remaining $1,200,000 on SG&A costs.

Required:
a. Create a product-level contribution margin statement for Caylor Company.
b. How might Caylor use the product contribution margin statement to make betterdecisions?

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Caylor Company Income Statement for the Most Recent Year Revenues Cost of goods sold Gross margin $17,400,000 1,840,000 $12,560,000 Selling, ral and administrative (SG&A) expenses 12.270,000 Profit before taxes $290,000 RX-560 VR-990 Number of doses sold Price per dose Variable manufacturing cost per dose Variable SG&A cost per dose 2,000,000 $6 $1 $4 Traceable fixed manufacturing costs$500,000 500,000 $1,000,000 1,350,000 180,000 $30 $3 $4 Traceable fixed SG&A costs