After Company Y's operating profit report and summary of manufacturing activity for the year has been prepared, you, the chief accountant, learn that $1,000,000 of raw materials were thrown away during the year because the items had spoiled and couldn't be used in the manufacturing process. The company's president knows about this loss and insists that no change be made in the operating profit report and summary of manufacturing activity. Do you go along with the president, or do you argue for changing the operating profit report and summary of manufacturing activity?
| |
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
|