=+2-46 KK Effects of differing production levels on absorption costing income: steps to minimise inventory build-ups OBJECTIVE 7 University Press produces textbooks for university courses. They recently hired a new editor, Leslie White, to handle production and sales of books for an introduction to accounting course. Leslie’s compensation depends on the gross margin associated with sales of this book. Leslie needs to decide how many copies of the book to produce. The following information is available for first semester 2014:

Estimated sales 20 000 books Beginning inventory 0 books Average selling price $80 per book Variable production costs $50 per book Fixed production costs $400 000 per semester The fixed cost allocation rate is based on expected sales and is therefore equal to:

$400 000/20 000 books = $20 per book Leslie has decided to produce either 20000, 24000 or 30000 books.

Required 1 Calculate expected gross margin if Leslie produces 20000, 24000 or 30000 books. (Make sure you include the production volume variance as part of cost of goods sold.)