1-a. Assume that the division is using variable costing. How many units should be scheduled for production during the last quarter of the year? Required production units 1-b. Will the number of units scheduled for production affect the division's reported income or loss for the year? Yes O No 2. Assume that the division is using absorption costing and that the divisional manager is given an annual bonus based on divisional operating income. If Mr. Cavalas wants to maximize his division's operating income for the year, how many units should be scheduled for production during the last quarter?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Carlos Cavalas, the manager of Echo Products' Brazilian Division, is trying to set the production schedule for the last
quarter of the year. The Brazilian Division had planned to sell 69,850 units during the year, but by September 30 only the
following activity had been reported:
Inventory, January 1
Production
Sales
Inventory, September 30
The division can rent warehouse space to store up to 30,700 units. The minimum inventory level that the division should
carry is 2,300 units. Mr. Cavalas is aware that production must be at least 5,940 units per quarter in order to retain a
nucleus of key employees. Maximum production capacity is 45,700 units per quarter.
Demand has been soft, and the sales forecast for the last quarter is only 20,900 units. Due to the nature of the division's
operations, fixed manufacturing overhead is a major element of product cost.
Required production
Required:
1-a. Assume that the division is using variable costing. How many units should be scheduled for production during the last
quarter of the year?
Yes
O No
Units
units
0
73,400
63,500
9,900
1-b. Will the number of units scheduled for production affect the division's reported income or loss for the year?
Required production
2. Assume that the division is using absorption costing and that the divisional manager is given an annual bonus based
on divisional operating income. If Mr. Cavalas wants to maximize his division's operating income for the year, how many
units should be scheduled for production during the last quarter?
units
Transcribed Image Text:Carlos Cavalas, the manager of Echo Products' Brazilian Division, is trying to set the production schedule for the last quarter of the year. The Brazilian Division had planned to sell 69,850 units during the year, but by September 30 only the following activity had been reported: Inventory, January 1 Production Sales Inventory, September 30 The division can rent warehouse space to store up to 30,700 units. The minimum inventory level that the division should carry is 2,300 units. Mr. Cavalas is aware that production must be at least 5,940 units per quarter in order to retain a nucleus of key employees. Maximum production capacity is 45,700 units per quarter. Demand has been soft, and the sales forecast for the last quarter is only 20,900 units. Due to the nature of the division's operations, fixed manufacturing overhead is a major element of product cost. Required production Required: 1-a. Assume that the division is using variable costing. How many units should be scheduled for production during the last quarter of the year? Yes O No Units units 0 73,400 63,500 9,900 1-b. Will the number of units scheduled for production affect the division's reported income or loss for the year? Required production 2. Assume that the division is using absorption costing and that the divisional manager is given an annual bonus based on divisional operating income. If Mr. Cavalas wants to maximize his division's operating income for the year, how many units should be scheduled for production during the last quarter? units
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