60.1K

Verified Solution

Link Copied!

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:

The division can rent warehouse space to store up to $30,800$ units. The minimum inventory level that the division should carry is $1,700$

units. Mr$.$ Cavalas is aware that production must be at least $7,020$ units per quarter in order to retain a nucleus of key employees.

Maximum production capacity is $44,100$ units per quarter.

Demand has been soft, and the sales forecast for the last quarter is only $19,100$ units. Due to the nature of the division's operations,

fixed manufacturing overhead is a major element of product cost.

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?

$1$b$.$ 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?

Answer & Explanation Solved by verified expert

See Answer