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Scott Higgins the new Plant Manager of Old City Manufacturing Plant Number 7. has just reviewed a draft of his year-end financial statements. Higgins receives a year-end bonus of 7.5% 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. Higgins demanded that his controller go back and "work the numbers" again Higgins insisted that if he didn't see a bletter operating income number the next time around he would be forced to look for a new controller. . Show numerically how operating income would improve by $930, 000 just by classifying the preceding costs as product costs instead of period expenses? Begin by determining the formula to compute how the controller was able to improve operating income, then enter the appropriate amounts and compute the increase in operating income. Old City Manufacturing classifies 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 $3, 875, 000 are classified as period expenses. Hewitt had suggested that warehousing costs be included as product costs because they are "definitely related to our product." The company produced 250.000 units during the period and sold 190.000 units. As the controller reworked the numbers he discovered that if he included warehousing costs as product costs, he could improve operating income by $930, 000. He was also sure these new numbers would make Higgins happy

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