Horizon 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 introduction to 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 2017: (Click the icon to view the information.) Fran has decided to produce either 27,000, 29,700, or 35, 100 books. Read the requirements Requirement 1. Calculate expected gross margin if Fran produces 27,000, 29,700, or 35,100 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 27,000 books, then 29,700 books, and lastly 35,100 books. (Enter a "0" for any zero balance accounts. If an account does not have a variance, do not select a label.) 27,000 books 29,700 books 35,100 books Revenues Cost of goods sold Production-volume variance Net cost of goods sold Gross margin Requirement 2. Calculate ending inventory in units and in dollars for each production level. (Complete all answer boxes. For amounts with a "0" unit or dollar balance, make sure to enter "0" in the appropriate cell.) 27,000 books 29,700 books 35,100 books books books books Beginning inventory Production Sales Ending inventory books books books Cost per book Cost of ending inventory 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 10% 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.) 27,000 books 29,700 books 35,100 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? Adjusting for ending inventory to mechanically compensate for all of the V mitigate the increase in inventory associated with excess production. Therefore, it may be from the organization's standpoint. increased income. In addition, it 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 27,000 29,700 35.100 A ratio of ending inventory to beginning inventory is The non-financial measures - se ster More info Horizon Press produces textbooks for high school accounting courses. The company recently hired a new editor, Fran G Fran's compensation depends on the gross margin associated with sales of this book. Fran needs to decide how many 2017: i (Click the icon to view the information.) Fran has decided to produce either 27,000, 29,700, or 35,100 books. Read the requirements Estimated sales 27,000 books Ending inventory charge Adjusted gross margin Beginning inventory O books Average selling price $81 per book Variable production costs $45 per book Fixed production costs $513,000 per semester The fixed-cost allocation rate is based on expected sales and is therefore equal to $513,000/27,000 books = $19 per book. Do you think the metric would accomplish the objective of discouraging managers from producing products in excess of Adjusting for ending inventory mitigate the increase in inventory associated with excess product increased income. In addition, it from the org 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 e Print Done # of books Excess production ratio 27.000 / 29 700 Next
