Reference no: EM132479415

Question 1: When Oscar was reviewing the financial statements at the end of the year, he noticed that Sybil produced 10,000 units of inventory despite the fact that he told her throughout the year that they only needed to sell 6,000 units. Now the company has 4,000 units in inventory and runs the risk of them being stolen or becoming obsolete. Why do you think Sybil over-produced inventory? Note that, at the beginning of the year, Oscar introduced a bonus compensation scheme whereby Sybil would be rewarded handsomely if she reduced manufacturing expenses. (Hint: Consider the connection among excess inventory, capitalization and allocation of product costs and how Sybil is compensated.)