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Problem 6-27 Incentives Created by Absorption Costing; Ethics and the Manager [LO6-2] Carlos Cavalas, the manager of Echo Products' Brazilian Division, is trying to set the production schedule for the last quarter of the year. The Brazilian Division had planned to sell 67,540 units during the year, but by September 30 only the following activity had been reported: Units Inventory, January 1 Production 71,100 61,400 9,700 Sales Inventory, September 30 The division can rent warehouse space to store up to 30,800 units. The minimum inventory level that the division should carry is 2,400 units. Mr. Cavalas is aware that production must be at least 5,820 units per quarter in order to retain a nucleus of key employees. Maximum production capacity is 45,000 units per quarter. Demand has been soft, and the sales forecast for the last quarter is only 19,400 units. Due to the nature of the division's operations, fixed manufacturing overhead is a major element of product cost. Required: 1a. Assume that the division is using variable costing. How many units should be scheduled for production during the last quarter of the year? 1b. Will the number of units scheduled for production affect the division's reported income or loss for the year? 2. Assume that the division is using absorption costing and that the divisional manager is given an annual bonus based on divisional operating income. If Mr. Cavalas wants to maximize his division's operating income for the year, how many units should be scheduled for production during the last quarter? Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 2