The controller of Wave Audio Inc. prepared the following product profitability report for management, using activity-based costing methods for allocating both the factory overhead and the 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 customers. The controller believes that the manufacturing costs for all three products are in line with expectations.

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 the calculations in (1) to make recommendations to management with respect to strategies for the threeproducts.

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Floor Booksheltf Sales Less cost of goods sold Gross profit Less marketing expenses Income from operations Loudspeakers $1,000,000 $300,000 $ (80,000 Loudspeakers $750,000 412,500 $337,500 Ribbon Loudspeakers $500,000 450,000 50,000 Totals $2,250,000 $687,500 $ 192,500 75,000 $262,500 10,000