Southern Press produces textbooks for high school 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. Leslie has to decide to produce 15k, 21k or 31,500 books.

Estimated sales 15,000 books Beginning inventory O books Average selling price $85 per book Variable production costs $54 per book Fixed production costs $360,000 per semester The fixed-cost allocation rate is based on expected sales and is therefore equal to $360,000/15,000 books = $24 per book. 1. Calculate expected gross margin if Leslie produces 15,000, 21,000, or 31,500 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