Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Answer required question: What did the consulting President do to rescue XYZ Corporation? Mini Case Study - The Turnaround Artist XYZ Co uses and actual
Answer required question: What did the consulting President do to rescue XYZ Corporation?
Mini Case Study - The Turnaround Artist XYZ Co uses and actual cost system to apply production costs to units produced. The plant has a maximum production capacity of 4 million units, but only 1 million units were sold in 2019 - there was not beginning or ending inventory for 2019. Income statement for 2019 below: XYZ Company Income Statement 31-Dec-19 $ 5,000,000.00 Sales (1,000,000 units at $5/unit) COGS Direct (1,000,000 at $2/unit) Indirect $ 2,000,000.00 $ 4,000,000.00 Gross Margin $ (1,000,000.00) Selling, General and Admin Costs $ 750,000.00 Operating Profit (Loss) $ (1,750,000.00) XYZ's executive team is very concerned about 2019's dismal financial performance. One of the executive's knows an outside consultant who said, "If you make me President, I can turn things around for you if you agree to a one-year contract. You do not have to pay me a salary, but I want 25% of the operating profit." XYZ hired the consultant as the new President. The new President increase production in 2020 to 3,000,000 units, while sales remained the flat. XYZ's absorption costing income statement for 202 is below: XYZ Company Income Statement 31-Dec-20 $ 5,000,000.00 Sales (1,000,000 units at $5/unit) COGS Direct (3,000,000 at $2/unit) Indirect Total Cost of Goods Manufactured $ 6,000,000.00 $ 4,000,000.00 $ 10,000,000.00 Less Ending Inventory Variable 2,000,000 at $2/unit) Indirect ($4,000,000/3,000,000)x2,000,000 Total Inventory $ 4,000,000.00 $ 2,666,666.67 $ 6,666,666.67 Total Cost of Goods Sold $ 3,333,333.33 Gross Margin $ 1,666,666.67 Selling, General and Admin Costs $ 750,000.00 Operating Profit (Loss) $ 916,666.67 As soon as the consultant's check for $229,000 cleared the bank, they resigned as President of XYZ stating, "Now that I have turned XYZ around, it is time for me to move on and rescue another company." Required: What did the consultant do to "rescue" XYZStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started