Mountain Press produces textbooks for high school accounting courses. The company recently hired a new editor, Jan Green, to handle production and sales of books for an introductory accounting course. Jan's compensation depends on the gross margin associated with sales of this book. Jan needs to decide how many copies of the book to produce. The following information is available for the fall semester 2020:

Estimated sales	28,000 books
Beginning inventory	0 books
Average selling price	$75 per book
Variable production costs	$46 per book
Fixed production costs	$644,000 per semester

The fixed-cost allocation rate is based on expected sales and is therefore equal to $644,000 28,000 books = $23 per book.

Jan has decided to produce either 28,000, 35,000, or 40,600 books.

Requirements:

1. Calculate expected gross margin if Jan produces 28,000, 35,000, or 40,600 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.

a.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.