Posted: July 12th, 2016

What is Gross Profit?

Gargantuan Industries is a multi product company with several manufacturing plants. The Boise Plant manufactures and distributes two household cleaning and polishing compounds, standard and commercial, under the Super Clean label. The forecasted operating results for the first six months of the current year, when 100,000 cases of each compound are expected to be manufactured and sold, are presented in the following statement.

“SUPER CLEAN COMPOUNDS—BOISE PLANT
Forecasted Results of Operations
For the Six-Month Period Ending June 30
(in Thousands)”
Standard Commercial Total
Sales ………………………………………………………………………………… 2,000.00 3,000.00 5,000.00
Cost of goods sold…………………………………………………………… 1,600.00 1,900.00 3,500.00
Gross Profit ……………………………………………………………… 400.00 1,100.00 1,500.00
Seling and Administrative Expenses:
Variable ……………………………………………………………………… 400.00 700.00 1,100.00
Fixed* ………………………………………………………………………… 240.00 360.00 600.00
Total selling and administrative expenses 640.00 1,060.00 1,700.00
Income (loss) before taxes ……………………………………………. (240.00) 40.00 (200.00)

*The fixed selling and administrative expenses are allocated between the two products on the basis of dollar sales volume.

The standard compound sold for $20 a case and the commercial compound sold for $30 a case during the first six months of the year. The manufacturing costs, by case of product, are presented in the schedule below. Each product is manufactured on a separate production line. Annual normal manufacturing capacity is 200,000 cases of each product. However, the plant is capable of producing 250,000 cases of standard compound and 350,000 cases of commercial compound annually.