Carlos Cavalas, the manager of Echo Products' Brazilian Division, is setting the production schedule for the last quarter of the year. The Brazilian Division planned to sell 67,540 units during the year, but by September 30 only the following activity had been reported: Inventory, January 1 Production Sales Inventory, September 30 Units 0 73,200 61,400 11,800 The division can rent warehouse space to store up to 30,000 units. The minimum inventory level the division should carry is 3,000 units. The minimum production must be at least 7,080 units per quarter to retain a nucleus of key employees. Maximum production capacity is 45,000 units per quarter. The sales forecast for the last quarter is only 20,600 units and fixed manufacturing overhead is a major element of product cost. Required: 1a. Assume the division is using variable costing. How many units should be scheduled for production during the last quarter of the year? 1b. Assume the division is using variable costing. Will the number of units scheduled for production affect the division's reported income or loss for the year? 2. Assume the division is using absorption costing and 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? Complete this question by entering your answers in the tabs below. Required 1A Required 1B Required 2
Carlos Cavalas, the manager of Echo Products' Brazilian Division, is setting the production schedule for the last quarter of the year. The Brazilian Division planned to sell 67,540 units during the year, but by September 30 only the following activity had been reported: Inventory, January 1 Production Sales Inventory, September 30 Units 0 73,200 61,400 11,800 The division can rent warehouse space to store up to 30,000 units. The minimum inventory level the division should carry is 3,000 units. The minimum production must be at least 7,080 units per quarter to retain a nucleus of key employees. Maximum production capacity is 45,000 units per quarter. The sales forecast for the last quarter is only 20,600 units and fixed manufacturing overhead is a major element of product cost. Required: 1a. Assume the division is using variable costing. How many units should be scheduled for production during the last quarter of the year? 1b. Assume the division is using variable costing. Will the number of units scheduled for production affect the division's reported income or loss for the year? 2. Assume the division is using absorption costing and 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? Complete this question by entering your answers in the tabs below. Required 1A Required 1B Required 2
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Carlos Cavalas, the manager of Echo Products' Brazilian Division, is setting the production schedule for the last quarter of the year. The
Brazilian Division planned to sell 67,540 units during the year, but by September 30 only the following activity had been reported:
Inventory, January 1
Production
Sales
Inventory, September 30
Units
0
73,200
61,400
11,800
The division can rent warehouse space to store up to 30,000 units. The minimum inventory level the division should carry is 3,000
units. The minimum production must be at least 7,080 units per quarter to retain a nucleus of key employees. Maximum production
capacity is 45,000 units per quarter.
The sales forecast for the last quarter is only 20,600 units and fixed manufacturing overhead is a major element of product cost.
Required:
1a. Assume the division is using variable costing. How many units should be scheduled for production during the last quarter of the
year?
1b. Assume the division is using variable costing. Will the number of units scheduled for production affect the division's reported
income or loss for the year?
2. Assume the division is using absorption costing and 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?
Complete this question by entering your answers in the tabs below.
Required 1A Required 1B Required 2
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