Mountain Press produces textbooks for high school accounting…
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 books to produce. The following information is available for the fall semester of 2017: Estimated sales ………………………………… 50,000 books Beginning inventory …………………………… 0 books Average selling price ………………………….. $ 160 per book Variable production costs ……………………… $ 100 per book Fixed production costs ………………………. $750,000 per semester The fixed-cost allocation rate is based on expected sales and is therefore equal to $750,000/50,000 books = $15 per book. Jan has decided to produce either 50,000, 65,000, or 70,000 books. Required 1. Calculate expected gross margin if Jan produces 50,000, 65,000, or 70,000 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. The chapter suggested metrics to discourage managers from producing products in excess of demand. Do
