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  3. lance inc. is experiencing a buildup of inventory

Lance Inc. is experiencing a buildup of inventory on an annual basis. Lance has hired...

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Question

Accounting

  1. Lance Inc. is experiencing a buildup of inventory on an annual basis. Lance has hired you to help understand why this is happening and how to correct it. Lance believes they have a competent management team that generates excellent results with respect to net income. Lance compensates its management team with both a competitive salary and bonus based on achieving a target net income. Lance Inc. has provided the following data for 2018:

Direct materials

$10

per unit

Direct labor

$15

per unit

Variable manufacturing overhead

$20

per unit

Fixed manufacturing overhead

$25,000

per year

Fixed selling and administrative costs

$15,000

per year

Sale price

$75

per unit

Beginning inventory

500

units

Units produced

5,000

units

Units sold

4,500

units

Required:

a) What are the possible reasons Lance is experiencing inventory buildup? You must support your answer.

b) What suggestion(s) do you have for Lance?

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