The new president promptly stepped up production to an annual rate of 30 million units. Sales for

Question:

The new president promptly stepped up production to an annual rate of 30 million units. Sales for year 2 remained at 10 million units. The resulting Brassinni Company absorption-costing income statement for year 2 follows:
BRASSINNI COMPANY Income Statement For the Year Ending December 31, Year 2 Salesi(10;,O00\OO0NIMItS a6) Shae eivee cae on caves eee aac eee $60, 000, 000 C o s t o f g o o d s s o l d : C o s t o f g o o d s m a n u f a c t u r e d : D i r e c t c o s t s, m a t e r i a l, a n d l a b o r (30 : 000! 000 A t G 2) 5 e a s a . 5 a e A A G a e a e o e$ 60,000,000 Manutactuningievericade swta ac re 48,000,000 Total cost of goods manufactured ............ $108, 000, 000 L e s s : E n d i n g i n v e n t o r y : V a r i a o l e (20; 000; 000 a t G 2) i i i i a n s e l e n e e r s$ 40,000,000 Imelirect:(20/3058 $480001000) 9. S a r i . e a . 32, 000, 000 N O t a k e N n c i n G n v e n t O n V a c e m e e t e e i n m e e$ 72,000,000 Costot Goods'Sold eeu Je Sc. Ie LO eral iy etary UE ee ee eta 36,000,000 (GhOSS"IMARGIM Hse ee Soiree eh ie ee en, See ae ee at Eo See Oe $24, 000, 000 S e l l i n g a n c a c i m i m i s t r a l l V e^{'} C O S t S t s a - i a a e r e t e e e i t q r t e r n s p e e e a r n n e n e : 10, 000, 000 @ © p e r a t i n g o r o r i v o c t o r e O O M U S m i e e a s e e e e t e o n t h e e t m e e e e$ 14,000,000 BORUS a Stee Set Ae Ee tie ED oe EY eRe 605 SAOe TS RUA OS Herc Pd Cee 1,400,000 Operating prolitaiier bonuses 1 Aare aie eee eee $12, 600, 000 T h e d a y a f t e r t h e s t a t e m e n t w a s v e r i f i e d, t h e p r e s i d e n t t o o k h i s c h e c k f o r$ 1,400,000 and resigned to take a job with another corporation. He remarked, “I enjoy challenges. Now that Brassinni Company is in the black, I’d prefer tackling another challenging situation.” (His contract with his new employer is similar to the one he had with Brassinni Company.)
Required

a. Step back, and look at this overal situation. In general, what do you think is going on here? More specifically, how would you evaluate the company’s year 2 performance?

b. Using variable costing, what would operating profit be for year 1? For year 2? (Assume that all selling and administrative costs are committed and unchanged.) Compare those results with the absorption-costing statements.
Comment on any ethical issues you see in this scenario

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