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Kennedy Company makes and sells designer handbags and the production manager is assessing the production level to execute for the upcoming year. Budgeted sales are

Kennedy Company makes and sells designer handbags and the production manager is assessing the production level to execute for the upcoming year. Budgeted sales are 20,000 units and Kennedy uses absorption costing. and the production manager is considering 20,000,25,000 or 30,000 units of production. There is no beginning inventory for the year.
The average selling price is $220 per unit with variable production costs of $120 per unit and fixed production cost of $550,000 per year.
Required:
Calculate the expected gross margin for each of the production levels that the production manager is considering. (6 marks)
If the production manager is compensated on a percentage of gross margin, what production level will they be motivated to make? (2 marks)
What is the impact of the bonus structure in place and what recommendations might you make to improve it?(2 marks)
A
B
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