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?
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Company Y
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Company Z
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Operating Profit Report for Year
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Per Unit
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Totals
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Per Unit
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Totals
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Sales volume, in Units
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500,000
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2,000,000
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Sales Revenue
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$85.00
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$42,500,000
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$25.00
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$50,000,000
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Cost of Goods Sold Expense (see below)
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-56
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-28,000,000
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-18.45
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-36,900,000
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Gross Margin
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$29.00
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$14,500,000
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$6.55
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$13,100,000
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Variable Operating Expenses
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-12.5
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-6,250,000
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-2.5
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-5,000,000
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Contribution Margin
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$16.50
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$8,250,000
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$4.05
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$8,100,000
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Fixed Operating Expenses
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-5,000,000
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-7,500,000
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Operating Profit
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$3,250,000
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$600,000
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Manufacturing Activity Summary for Year
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Per Unit
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Totals
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Per Unit
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Totals
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Annual Production Capacity, in Units
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800,000
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2,500,000
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Actual Output, in Units
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500,000
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2,500,000
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Raw Materials
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$15.00
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$7,500,000
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$7.50
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$18,750,000
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Direct Labor
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20
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10,000,000
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2.75
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6,875,000
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Variable Manufacturing Overhead Costs
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5
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2,500,000
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5
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12,500,000
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Total Variable Manufacturing Costs
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$40.00
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$20,000,000
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$15.25
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$38,125,000
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Fixed Manufacturing Overhead Costs
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16
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8,000,000
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3.2
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8,000,000
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Product Cost and Total Manufacturing Costs
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$56.00
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$28,000,000
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$18.45
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$46,125,000
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