Question
3. (20 points) Lance Inc. is experiencing a buildup of inventory on an annual basis. Lance has hired you to help understand why this is
3. (20 points) Lance Inc. is experiencing a buildup of inventory on an annual basis. Lance has hired you to help understand why this is happening and how to correct it. Lance believes they have a competent management team that generates excellent results with respect to net income. Lance compensates its management team with both a competitive salary and bonus based on achieving a target net income. Lance Inc. has provided the following data for 2018: Direct materials $10 per unit Direct labor $15 per unit Variable manufacturing overhead $20 per unit Fixed manufacturing overhead $25,000 per year Fixed selling and administrative costs $15,000 per year Sale price $75 per unit Beginning inventory 500 units Units produced 5,000 units Units sold 4,500 units Required: a) What are the possible reasons Lance is experiencing inventory buildup? You must support your answer. b) What suggestion(s) do you have for Lance?
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