Problem $8-16$ Incentives Created by Absorption Costing; Ethics and the Manager $[$LO$2,$ LO$4]$

Lydia Hartley, manager of UltraProducts' New Zealand Division, is trying to set the production schedule for the last quarter of the year.

The New Zealand Division had planned to sell $100,000$ units during the year, but current projections indicate sales will be only $78,000$

units in total. By September $30,$ the following activity had been reported:

Demand has been soft, and the sales forecast for the last quarter is only $18,000$ units.

The division can rent warehouse space to store up to $30,000$ units. The division should maintain a minimum inventory level of $1,500$

units. Hartley is aware that production must be at least $6,000$ units per quarter in order to retain a nucleus of key employees. Maximum

production capacity is $45,000$ units per quarter.

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?

Required production

$1-$b$.$ This part of the question is not part of your Connect assignment.

Assume that the division is using absorption costing and that the divisional manager is given an annual bonus based on the

division's operating income. If Hartley wants to maximize her division's operating income for the year, how many units should be

scheduled for production during the last quarter?