Governance, manager's performance evaluation. (A. Spero, adapted) Schomberg Milk Products manufactures and sells organic Balkanic-style yogurt. Each box of 48 yogurts is sold for $30. Schomberg's manufacturing costs per box of 48 yogurts consist of the following:

Schomberg Milk Products calculates operating income using absorption costing—that is, Schomberg Milk Products calculates fixed manufacturing costs per box by dividing total manufacturing costs by actual production. Schomberg Milk Products costs all units in inventory at this rate and expenses the costs in the income statement only when the units in inventory are sold. The details of fixed costs per quarter are as follows:

‘The next quarter appears to be a difficult one for Schomberg Milk Products. It expects to sell only 100,000 boxes. The demand for this specialty yogurt fluctuates considerably with general economic conditions. Schomberg Milk Products, like most of the companies in this industry, usually holds minimal inventory.
REQUIRED 1. Calculate Schomberg Milk Products’ operating income in the next quarter if it manufactures

(a) 100,000 boxes and

(b) 125,000 boxes.
2. Would it be unethical for the general manager of Schomberg Milk Products to produce more boxes than can be sold in order to show better operating results? ‘he manager's compensation has a bonus component based on operating income. Explain your answer.
3. Would it be unethical for the manager to ask distributors to buy more product than they need? Schomberg Milk Products follows the industry practice of booking sales when products are shipped to distributors. Explain your answer.LO1

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Raw milk Fruits and flavours $ 8.00 1.50 Other variable costs 6.50 Total variable costs $16.00