Wendy Jackson, the new plant manager of Binary Manufacturing has just reviewed a draft of his year-end financial statements. Wendy receives a year-cnd bonus of 10% of the plant's operating income before tax. The year-end income statement provided by the plant's controller was disappointing to say the least. After reviewing the numbers, Wendy demanded that his controller go back and "work the numbers" again. Wendy insisted that if he didn't see a better operating income the next time he would be foreed to look for a new controller. Binary Manufacturing elassifies all costs directly related to the manufacturing of its product as product costs. These costs are inventoried and later expensed as costs of goods sold when the product is sold. All other expenses, including finished goods warehousing costs of $3250000 are classified as period expenses. Wendy had suggested that warehousing costs be ineluded as product costs because they are "definitely related to our product". The company produced 200,000 units during the peried and sold 180,000 units. As the controller reworked the numbers he discovered that if he included warehousing costs as product costs, he could improve operating income by $325,000. He was also sure that these new numbers would make Wendy happy. Instructions: 1. Show numerically how operating income would improve by $325,000 just by classifying the preceding costs as product costs instead of period expense? ( 6 marks) 2. Is Wendy correct in his justification that these costs "are definitely related to our product"? (4 marks) 3. What should the plant controller do? (2 marks)