Bob Abue, the manager of Serious Standard Products, is trying to decide what production schedule to set for the last quarter of the year.Serious 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: Units Inventory, January 1 - Production 72,000 Sales 60,000 Inventory, September 30 12,000 Serious can rent warehouse space to store up to 30,000 units. The company must maintain a minimum inventory level of at least 1,500 units.Mr. Abue 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 operations, fixed overhead is a major element of product cost.
Assume that Serious is using variable costing.How many units should be scheduled for production during the last quarter of the year?Use the following formula for required production in the fourth quarter: Required production = Expected sales + Desired ending inventory - Beginning inventory Will the number of units scheduled for production affect reported profit for the year?Explain.
Assume that Serious is using absorption costing and that Mr. Abue is given an annual bonus based on reported profit. If Mr. Abue wants to maximize Serious' reported profit for the year, how many units should be scheduled for production in the fourth quarter? Use the same formula as above. Identify the ethical issues involved in the decision Mr. Abue must make about fourth-quarter production.