Assume that Johnny Johnson (manager of Johnson Company from PE 20-11) will only receive his managerial bonus if operating income is the same or higher in 2012 than in 2011 (according to the absorption method). Unfortunately, 2012 sales for his company have fallen drastically for the year while variable and fixed costs have remained constant. Given the information in PE 20-11 and that kites sold for 2012 was 172,381 kites, answer the following questions:

1. How much would Johnny want to produce in 2012 to get his bonus (assume FIFO)?

2. What is the percentage of production volume to sales volume for 2011? 2012?

3. What can the board of directors do to provide better performance incentives in this situation?

4. What other costs associated with inventory are present but not calculated?