### Determine the production output level

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##### Reference no: EM13535021

Towards the end of the year, the president of Company Y looks at the preliminary numbers for operating profit and doesn't like what he sees. He's "promised" the board of directors that operating profit for the year will come in at \$4,850,000. In fact, his bonus depends on hitting that operating profit target. There is still time before the end of the year to crank up production output for the year. Therefore, he orders that production output be stepped up. The president asks you to determine what the production output level for the year would have to be in order to report \$4,850,000 operating profit for the year. Of course, you have ethical qualms about doing this, but you need the job. So, you reluctantly decide to do the calculation. Determine the production output level that would yield \$4,850,000 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

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