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.
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.
Chapter1: Financial Statements And Business Decisions
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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?
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