Question

Academia Press produces textbooks for college courses. The company recently hired a new editor, Morgan White, to handle production and sales of books for an introduction to accounting course. Morgan's compensation depends on the gross margin associated with sales of this book. Morgan needs to decide how many copies of the book to produce. The following information is available for the fall semester 2013: i (Click the icon to view the information.) Morgan has decided to produce either 16,000, 20,000, or 24,800 books. Read the requirements. Requirement 1. Calculate expected gross margin if Morgan produces 16,000, 20,000, or 24,800 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 16,000 books, then 20,000 books, and lastly 24,800 books. (Enter a "0" for any zero balance accounts. If an account does not have a variance, do not select a label.) 16,000 books 0 More Info - X Requirements Estimated sales Beginning inventory Average selling price $ Variable production costs $ 16,000 books O books 75 per book 45 per book 1. Calculate expected gross margin if Morgan produces 16,000, 20,000, or 24,800 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 10% of the cost of the ending inventory as an expense for evaluating the manager. b. Include nonfinancial measures when evaluating management and rewarding performance. per Fixed production costs $ 304,000 semester The fixed cost allocation rate is based on expected sales and is therefore equal to $304,000/16,000 books = $19 per book

Answer 1

Answer Sallation of Expected Gross Margin if Morgan produces 16000 9000ov 24800 books Particulars sales 120000 | (16000 books X75) (10000) - Variable costs 480000 480000 Production in units 16000 T9600D 12,00000 1200000 (16000 bools x 75) |(16000 books x 75) (720000) (790000) (16000 books X 45 C16ooo books X 45) (160 780000 (304000) (304000) 196000 176000 1 176000 76000 167200 Teig x 16000 books) Ifig X 2000s books (19 X 24800boo.. - 304000) - 304000] - 304000] 343200 176000 252000 - Fixed costs (204000) +! Production Volume Variance vibebussolb 16000 دادن ماده اول ܪܘܘܦܬ ܓ 24 300 Cost per unit : variable cost + Fixed Cust) per unit $ (45 + 19) per unit = $64 per unit 2. Calculation of cost of ending inventory and ending inventory in units. pquticulous Begining Inventory 00000 Doov t: Rodyction 29000 24800 2000024800 - sales (16000) K16ooo) K16000) ending Inventory (iñ vnius cost per unit 64 Ending inventory lin dollars) (182) OOOOO 16000 16000 4000 880 256600563200

39. Incorporation of ending inventory e of the cost of corporation of 10% chadge of the cost an expense for evaluating a manager ending | production 24800 16000 176000 20002 252000 խրեակա՞ Gross Margin 10% charge of enving Inventory Adjusted 42055 margin 343200 (56320) - B (25600) | 176000 226400 286880 teqross Marghe As the production increases, the ensing inventory also Increases because there is no opening inventory. Such increment will 9150 inwegse the cost and company has to pay bonus such payment of bonus will reduce the net gross margin and it is a possible to be responsible to a manager for the decreque in net gross margin. Therefore, metrics . will not accomplish a objective to earn maximum groir mangin. Non financial measure when evaluating manager and rewarding performance. 3.6 Production 20 000 16000 8800 4000 particulars Change in Inventory (Begining - Ending Enverband percentage of Erress Production / Production) (160) 16 ott) 1:55 2000 पण' ( ) 16000 16000 Sooo