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Question: Gattu Corporation makes a driveway sealing compound that it sells in 5 gallon cans for Rs. 50 Per can.
Company’s sales personnel have estimated annual sales of 3,600 units divided among the quarters as follows:
First quarter 1,000 units
Second quarter 1,100 units
Third quarter 800 units
Fourth quarter 700 units
Operating capacity of the manufacturing facilities is 900 units per quarter. Production of more than 900 units requires additional costs. Production cost is Rs. 30 per unit and there would be a 20 percent increase in cost for units in excess of 900 per quarter.
The production manager is evaluated on the cost of production, whereas the sales manager is evaluated on the basis of sales revenue. The sales manager claims that if he had only 900 units to sell in each of the first two quarters,
the unsatisfied customers would switch to new products and sales in each of the last two quarters would be 50 units less than estimated.
You are required to prepare sales and production budgets to determine how production should be scheduled and to resolve the conflict between the sales and production managers.
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