Northern 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 28,000, 35,000, or 40,600 books. Read the requirements. i X More Info Estimated sales 28,000 books Beginning inventory O books Average selling price $85 per book Variable production costs $46 per book Fixed production costs $588,000 per semester The fixed-cost allocation rate is based on expected sales and is therefore equal to $588,000/28,000 books = $21 per book. Print Done Requirements 1. Calculate expected gross margin if Fran 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. Incorporate a charge of 10% of the cost of the ending inventory as an expense for evaluating the manager. Include nonfinancial measures when evaluating management and rewarding performance. a. b. Print Done Requirement 1. Calculate expected gross margin if Fran produces 28,000, 35,000, or 40,600 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 28,000 books, then 35,000 books, and lastly 40,600 books. (Enter a "0" for any zero balance accounts. If an account does not have a variance, do not select a label.) 28,000 books 35,000 books 40,600 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 "O" in the appropriate cell.) 28,000 books 35,000 books 40,600 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.) 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? Adjusting for ending inventory mitigate the increase in inventory associated with excess production. Therefore, it may be to mechanically compensate from the organization's standpoint. for all of the increased income. In addition, it Do you think the metric would accomplish the objective of discouraging managers from producing products in excess of demand? Adjusting for ending inventory mitigate the increase in inventory associated with excess production. Therefore, it may be to mechanically compensate from the organization's standpoint. for all of the increased income. does not b. Include nonfinancial measur nt and rewarding performance. does to some degree One nonfinancial measure is to n ratio. Determine the formula, then compute the ratio at each production level. (Round the ratios to two decimal places.) will always # of books Excess production ratio Do you think the metric would accomplish the objective of discouraging managers from producing products in excess of demand? V to mechanically compensate Adjusting for ending inventory for all of the increased income. In addition, it mitigate the increase in inventory associated with excess production. Therefore, it may be from the organization's st difficult 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. (Roi easy wo decimal places.) Do you think the metric would accomplish the objective of discouraging managers from producing products in excess of demand? Adjusting for ending inventory V mitigate the increase in inventory associated with excess production. Therefore, it may be V to mechanically compensate from the organization's standpoint. for all of the increased income. In addition, it b. Include nonfinancial measures when evalu One nonfinancial measure is to compute the does nothing to hold the manager responsible for the poor decisions rewards the manager for increasing production which is a good decision duction level. (Round the ratios to two decimal places.) # of books 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 A ratio of ending inventory to beginning inventory is The non-financial measures Choose from any list or enter any number in the input fields and then continue to the next question. A ratio of ending inventory to beginning inventory is The non-financial measures not possible since beginning inventory was 0. A change in inventory level can be used instead. Choose from any list or enter any number in the i possible since there was beginning inventory. A ratio of ending inventory to beginning inventory is The non-financial measures are only needed if we don't use the inventory metric. to the next question. must be incorporated into the reward function of the manager to be useful