Question
In: Accounting
David Wong, the product manager of KiKi Company, was reviewing the production schedule for the last...
David Wong, the product manager of KiKi Company, was reviewing the production schedule for the last quarter of 2020. He noted that the company planned to sell 4,000 units during the year and keep a minimum closing inventory level at 100 units on 31 December 2020. As at 30 September 2020, the following data was reported.
Units
Inventory, 1 January 2020 0
Production 3,000
Sales 2,700
Inventory, 30 September 2020 300
At the beginning of the year, the company rented a warehouse that could store its inventory up to 1,250 units. The company had a maximum production capacity of 2,300 units per quarter.
Required:
(a) Assume that KiKi Company adopted marginal costing,
(i) what is the minimum units that the company should produce
during the last quarter of 2020?
(ii) will the number of units produced affect the company’s profit or loss for the year? Explain.
(b) Assume that the company adopted absorption costing and David was given an annual bonus based on the company’s reported profit. If David wanted to maximize his bonus in 2020, how many units would he produce? Explain.
(c) Advise the management of the company on the costing method that should be chosen to determine David’s bonus?
Solutions
ekkarill92 answered 1 year agoRelated Solutions
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