LIFO provides opportunity for income manipulation. EKG Company, a manufacturer of medical supplies, began the year with 10,000 units of product that cost $8 each. During the year, it produced another 60,000 units at a cost of $15 each. Sales for the year were expected to total 70,000 units. During November, the company needs to plan production for the remainder of the year. The company might produce no additional units beyond the 60,000 units already produced. On the other hand, the company could produce up to 100,000 additional units; the cost would be $22 per unit regardless of the quantity produced. Assume that sales are 70,000 units for the year at an average price of $30 per unit.

a. What production level for the remainder of the year gives the largest cost of goods sold for the year? That is that cost of goods sold?

b. What production level for the remainder of the year is the smallest cost of goods sold for the year? What is that cost of goods sold?

c. Compare the gross margins implied by the two production plans devised in the preceding parts.