Assume that the division is using absorption costing and that the divisional manager is given an annual bonus based ondivisional operating income. If Mr. Cavalas wants to maximize his division's operating income for the year, how many unitsshould be scheduled for production during the last quarter?Required productionunits Carlos Cavalas, the manager of Echo Products' Brazilian Division, is trying to set the production schedule for the last quarter of theyear. The Brazilian Division had planned to sell 68,420 units during the year, but by September 30 only the following activity hadbeen reported:Inventory, January 1ProductionSalesInventory, September 30Units072,10062,2009,900The division can rent warehouse space to store up to 30,800 units. The minimum inventory level that the division should carry is1,600 units. Mr. Cavalas is aware that production must be at least 5,940 units per quarter in order to retain a nucleus of keyemployees. Maximum production capacity is 44,900 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'soperations, fixed manufacturing overhead is a major element of product cost.

Costing refers to the method that should be followed by an organization in recording the cost…

Carlos Cavalas, the manager of Echo Products' Brazilian Division, is try year. The Brazilian Division had planned to sell 68,420 units during the been reported: Inventory, January 1 Production Sales Inventory, September 30 Units 0 72,100 62,200 9,900

Carlos Cavalas, the manager of Echo Products' Brazilian Division, is try year. The Brazilian Division had planned to sell 68,420 units during the been reported: Inventory, January 1 Production Sales Inventory, September 30 Units 0 72,100 62,200 9,900

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Concept explainers

Inventory Accounting

Inventory accounting is that branch of accounting that helps in determining the specific value of assets at different stages of production and development.

Question

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?
Required production
units

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 68,420 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
72,100
62,200
9,900
The division can rent warehouse space to store up to 30,800 units. The minimum inventory level that the division should carry is
1,600 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 44,900 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.

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