Adalard Mller, the new plant manager of New Times Manufacturing Plant Number 12, has just reviewed a

Adalard Müller, the new plant manager of New Times Manufacturing Plant Number 12, has just reviewed a draft of his year-end financial statements. Müller receives a year-end bonus of 8% 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, Müller demanded that his controller go back and “work the numbers” again. Müller insisted that if he didn’t see a better operating income number the next time around, he would be forced to look for a new controller. New Times 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 $3,570,000, are classified as period expenses. Müller had suggested that warehousing costs be included as product costs because they are “definitely related to our product.” The company produced 210,000 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 $340,000. He was also sure these new numbers would make Müller happy.

Required

1. Show numerically how operating income would improve by $340,000 just by classifying the preceding  costs as product costs instead of period expenses.
2. Is Müller correct in his justification that these costs are “definitely related to our product”?
3. By how much will Müller profit personally if the controller makes the adjustments in requirement 1?
4. What should the plant controller do?