Estimated sales	15,000	books
Beginning inventory	0	books
Average selling price	$81	per book
Variable production costs	$54	per book
Fixed production costs	$225,000	per semester

The fixed cost allocation rate is based on expected sales and is therefore equal to

$ 225,000/15,000 books =$ 15 per book.

Managers who are paid a bonus that is a function of gross margin may be inspired to produce a product in excess of demand to maximize their own bonus. There are metrics to discourage managers from producing products in excess of demand. Do you think the following metrics will accomplish this objective? Show your work.

a. Incorporate a charge of 5% of the cost of the ending inventory as an expense for evaluating the manager. (Complete all answer boxes. For a $0 change, make sure to enter "0" in the appropriate cell.) Please show formulas for solving

	15,000 books		21,000 books		31,500 books
Gross margin
Ending inventory charge
Adjusted gross margin