Global Press produces textbooks for high school accounting courses. The company recently hired a new editor, Fran Green, to handle production and sales of books for an introductory accounting course. Fran's compensation depends on the gross margin associated with sales of this book. Fran needs to decide how many copies of the book to produce. The following information is available for the fall semester 2020: (Click the icon to view the information.) Fran has decided to produce either 21,000, 25,200, or 29,400 books. Read the requirements. Requirement 1. Calculate expected gross margin if Fran produces 21,000, 25,200, or 29,400 books. (Make sure you include the production-volume variance as part of cost of goods sold.) Calculate the gross margin for each level of production. Begin with 21,000 books, then 25,200 books, and lastly 29,400 books. (Enter a "0" for any zero balance accounts. If an account does not have a variance, do not select a label.) 21,000 books Revenues - More info Cost of goods sold Production-volume variance Net cost of goods sold Estimated sales 21,000 books Gross margin Beginning inventory O books Average selling price $85 per book Variable production costs $55 per book Fixed production costs $483,000 per semester The fixed-cost allocation rate is based on expected sales and is therefore equal to $483,000 + 21,000 books = $23 per book. Print Done 35,000 books 40,600 books $ 2,212,000 2,044,000 126,000 F 1,918,000 $ 294,000 Requirement 2. Calculate ending inventory in units and in dollars for each production level. (Complete all input fields. For amounts with a "0" unit or dollar balance, make sure to enter "0" in the appropriate cell.) 28,000 books Beginning inventory books Production Sales Ending inventory books Cost per book Cost of ending inventory 35,000 books books books 40,600 books books books Requirement 3. 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 input fields. For a $0 change, make sure to enter "0" in the appropriate cell.) 28,000 books 35,000 books 40,600 books Gross margin Ending inventory charge Adjusted gross margin Do you think the metric would accomplish the objective of discouraging managers from producing products in excess of demand? V to Adjusting for ending inventory mitigate the increase in inventory associated with excess production. Therefore, it may be mechanically compensate for all of the increased income. In addition, it organization's standpoint. from the b. Include nonfinancial measures when evaluating management and rewarding performance. One nonfinancial measure is to compute the excess production ratio. Determine the formula, then compute the ratio at each production level. (Round the ratios to two decimal places.) # of books = Excess production ratio 28,000 + = 35,000 + 40,600 + II A ratio of ending inventory to beginning inventory is The non-financial measures
