When Oscar was reviewing the financial statements at the end of the year, he noticed that Sybil
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Question:
When Oscar was reviewing the financial statements at the end of the year, he noticed that Sybil produced units of inventory despite the fact that he told her throughout the year that they only needed to sell units. Now the company has units in inventory and runs the risk of them being stolen or becoming obsolete.
Why do you think Sybil overproduced inventory?
Note, that at the beginning of the year, Oscar introduced a bonus compensation scheme whereby Sybil would be rewarded handsomely if she reduced manufacturing expenses. Hint: Consider the connection among excess inventory, capitalization and allocation of product costs and how Sybil is compensated.
Related Book For
Intermediate Accounting
ISBN: 978-1260481952
10th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson, Wayne Thomas
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