Problem:
In table, which shows Company X's operating profit performance and summary of manufacturing activity for the year, it is assumed that there were no wasteful manufacturing costs. In this question, assume, instead, that the business had to throw away $1,200,000 of unusable raw materials. How should the $1,200,000 cost of raw materials that were thrown out be presented in the operating profit report and summary of manufacturing activity?
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Company X
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Per Unit
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Totals
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Operating Profit Report for Year
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Sales volume, in Units
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110,000
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Sales Revenue
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$1,400.00
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$154,000,000
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Cost of Goods Sold Expense (see below)
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-760
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-83,600,000
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Gross Margin
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$640.00
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$70,400,000
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Variable Operating Expenses
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-300
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-33,000,000
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Contribution Margin
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$340.00
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$37,400,000
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Fixed Operating Expenses
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-21,450,000
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Operating Profit
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$15,950,000
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Manufacturing Activity Summary for Year
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Per Unit
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Totals
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Annual Production Capacity, in Units
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150,000
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Actual Output, in Units
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120,000
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Raw Materials
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$215.00
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$25,800,000
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Direct Labor
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125
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15,000,000
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Variable Manufacturing Overhead Costs
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70
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8,400,000
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Total Variable Manufacturing Costs
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$410.00
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$49,200,000
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Fixed Manufacturing Overhead Costs
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350
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42,000,000
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Product Cost and Total Manufacturing Costs
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$760.00
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$91,200,000
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