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 67,320 units during the year, but by September 30 only the following activity had been reported: Inventory, January 1 Production Sales Inventory, September 30. Units 72,600 61,200 11,400 The division can rent warehouse space to store up to 29,900 units. The minimum inventory level that the division should carry is 2,200 units. Mr. Cavalas is aware that production must be at least 6,840 units per quarter in order to retain a nucleus of key employees. Maximum production capacity is 44,000 units per quarter. Demand has been soft, and the sales forecast for the last quarter is only 19,500 units. Due to the nature of the division's operations, fixed manufacturing overhead is a major element of product cost. Required: 1a. Assume that the division is using variable costing. How many units should be scheduled for production during the last quarter of the year? 1b. Assume that 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 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?
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 67,320 units during the year, but by September 30 only the following activity had been reported: Inventory, January 1 Production Sales Inventory, September 30. Units 72,600 61,200 11,400 The division can rent warehouse space to store up to 29,900 units. The minimum inventory level that the division should carry is 2,200 units. Mr. Cavalas is aware that production must be at least 6,840 units per quarter in order to retain a nucleus of key employees. Maximum production capacity is 44,000 units per quarter. Demand has been soft, and the sales forecast for the last quarter is only 19,500 units. Due to the nature of the division's operations, fixed manufacturing overhead is a major element of product cost. Required: 1a. Assume that the division is using variable costing. How many units should be scheduled for production during the last quarter of the year? 1b. Assume that 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 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Topic Video
Question
Vijay
Subject: accounting
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 67,320 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
72,600
61,200
11,400.
The division can rent warehouse space to store up to 29,900 units. The minimum inventory level that the division should carry is 2,200
units. Mr. Cavalas is aware that production must be at least 6,840 units per quarter in order to retain a nucleus of key employees.
Maximum production capacity is 44,000 units per quarter.
Demand has been soft, and the sales forecast for the last quarter is only 19,500 units. Due to the nature of the division's operations,
fixed manufacturing overhead is a major element of product cost.
Required:
1a. Assume that the division is using variable costing. How many units should be scheduled for production during the last quarter of
the year?
1b. Assume that 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 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?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education