Carlos Cavalas, the manager of Echo Products Brazilian Division, is setting the production schedule for the last quarter of the year. The Brazilian Division planned to sell 70,180 units during the year, but by September 30 only the following activity had been reported:

	Units
Inventory, January 1	0
Production	72,700
Sales	63,800
Inventory, September 30	8,900

The division can rent warehouse space to store up to 29,900 units. The minimum inventory level the division should carry is 2,200 units. The minimum production must be at least 5,340 units per quarter to retain a nucleus of key employees. Maximum production capacity is 45,500 units per quarter.

The sales forecast for the last quarter is only 19,000 units and fixed manufacturing overhead is a major element of product cost.

Required:

1a. Assume the division is using variable costing. How many units should be scheduled for production during the last quarter of the year?

1b. Assume the division is using variable costing. Will the number of units scheduled for production affect the divisions reported income or loss for the year?

2. Assume the division is using absorption costing and the divisional manager is given an annual bonus based on divisional operating income. If Mr. Cavalas wants to maximize his divisions operating income for the year, how many units should be scheduled for production during the last quarter?