Operating profit for the year

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Reference no: EM13535006

In which Company Z produces only 2,000,000 units during the year. In the scenario shown in table, the business manufactures 2,500,000 units, which is its maximum production output for the year. Do you think that Company Z cranked up production output to 2,500,000 units mainly to boost its 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: EM13535006

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