Company Y was on track to sell 550,000 units in the year, but late in the year, a major customer canceled a large order for 50,000 units. The business reduced its production output to 500,000 units, as you see in table. Determine the operating profit Company Y would have earned if it had manufactured and sold 550,000 units in the year.
|
Company Y |
Company Z |
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|
Operating Profit Report for Year |
Per Unit |
Totals |
Per Unit |
Totals |
|
Sales volume, in Units |
500,000 |
2,000,000 |
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|
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 |
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|
Manufacturing Activity Summary for Year |
Per Unit |
Totals |
Per Unit |
Totals |
|
Annual Production Capacity, in Units |
800,000 |
2,500,000 |
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|
Actual Output, in Units |
500,000 |
2,500,000 |
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|
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 |