Determine the production output level

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Reference no: EM13535021

Towards the end of the year, the president of Company Y looks at the preliminary numbers for operating profit and doesn't like what he sees. He's "promised" the board of directors that operating profit for the year will come in at $4,850,000. In fact, his bonus depends on hitting that operating profit target. There is still time before the end of the year to crank up production output for the year. Therefore, he orders that production output be stepped up. The president asks you to determine what the production output level for the year would have to be in order to report $4,850,000 operating profit for the year. Of course, you have ethical qualms about doing this, but you need the job. So, you reluctantly decide to do the calculation. Determine the production output level that would yield $4,850,000 operating profit for the year.

 

Company Y

Company Z

Operating Profit Report for Year

Per Unit

Totals

Per Unit

Totals

Sales volume, in Units

 

500,000

 

2,000,000

Sales Revenue

$85.00

$42,500,000

$25.00

$50,000,000

Cost of Goods Sold Expense (see below)

-56

-28,000,000

-18.45

-36,900,000

Gross Margin

$29.00

$14,500,000

$6.55

$13,100,000

Variable Operating Expenses

-12.5

-6,250,000

-2.5

-5,000,000

Contribution Margin

$16.50

$8,250,000

$4.05

$8,100,000

Fixed Operating Expenses

 

-5,000,000

 

-7,500,000

Operating Profit

 

$3,250,000

 

$600,000

Manufacturing Activity Summary for Year

Per Unit

Totals

Per Unit

Totals

Annual Production Capacity, in Units

 

800,000

 

2,500,000

Actual Output, in Units

 

500,000

 

2,500,000

Raw Materials

$15.00

$7,500,000

$7.50

$18,750,000

Direct Labor

20

10,000,000

2.75

6,875,000

Variable Manufacturing Overhead Costs

5

2,500,000

5

12,500,000

Total Variable Manufacturing Costs

$40.00

$20,000,000

$15.25

$38,125,000

Fixed Manufacturing Overhead Costs

16

8,000,000

3.2

8,000,000

Product Cost and Total Manufacturing Costs

$56.00

$28,000,000

$18.45

$46,125,000

Reference no: EM13535021

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