Horizon Press produces textbooks for high school accounting courses. The company recently hired a new editor, Leslie Green, 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 the fall semester 2017: (Click the icon to view the information.) Leslie has decided to produce either 18,000, 27,000, or 29,700 books. Read the requirements. ..... Requirement 1. Calculate expected gross margin if Leslie produces 18,000, 27,000, or 29,700 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 18,000 books, then 27,000 books, and lastly 29,700 books. (Enter a "0" for any zero balance accounts. If an account does not have a variance, do not select a label.) 18,000 books 27,000 books 29,700 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.) 18,000 books 27,000 books 29,700 books Beginning inventory books books books Production Sales Ending inventory books books books Cost per book Cost of ending inventory producing producis in excess of Requirement au Whn aine reicies torneos eton ish huge obje strane hrane urma pe inspired to produce a proxuct in excess of dermand l maxinize their owri bonus. There are metrics to discourage mariagers i 3. Managers who the following will accomplish this objective? Show your work. a. Incorporate a charge of 15% of the cost of the ending inventory as an expense for evaluating the manager (Complete all answer boxes. For a 50 change, make sure to enter "O' in the appropriate cell.) 27,000 books 19,000 books 29,700 books GOSS 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 increased income. In addition, it V mitigate the increase in inventory associated with excess production. Therefore, it may be from the organization's standpoint . Include nontinancial measures when evaluating management and rewarding performance One no financial 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 18.XX) 27.000 29.700 A ratio of ending inventory to beginning inventory is The non-financial measures . More info be Jork. Requirements Jalud Estimated sales 18,000 books Beginning inventory O books Average selling price $81 per book Variable production costs $48 per book Fixed production costs $270,000 per semester The fixed-cost allocation rate is based on expected sales and is therefore equal to $270,000/18,000 books = $15 per book. 1. Calculate expected gross margin if Leslie produces 18,000, 27,000, or 29,700 books. (Make sure you include the production-volume variance as part of cost of goods sold.) 2. Calculate ending inventory in units and in dollars for each production level. 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. Incorporate a charge of 15% of the cost of the ending inventory as an expense for evaluating the manager. b. Include nonfinancial measures when evaluating management and rewarding performance. a. pro - as
