Acc 5-1 question 1 part 2

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School
Southern New Hampshire University **We aren't endorsed by this school
Course
ACC 550
Subject
Accounting
Date
Nov 5, 2023
Pages
1
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Global Press produces textbooks for high school accounting courses. The company recently hired a new editor, Jean Green, to handle production and sales of books for an introductory accounting course. Jean's compensation depends on the gross margin associated with sales of this book. Jean needs to decide how many copies of the book to produce. The following information is available for the fall semester 2020: o (Click the icon to view the information.) Jean has decided to produce either 27,000, 29,700, or 35,100 books. Read the requirements. wuoL v CIIUIIIE mvocinw ' 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 5% of the cost of the ending inventory as an expense for evaluating the manager. (Complete all input fields. For a $0 change, make sure to enter "0" in the appropriate cell.) 27,000 books 29,700 books 35,100 books Gross margin 3 513,000 $ 569,700 $ 683,100 0 8,910 26,730 $ 513,000 $ 560,790 $ 656,370 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 does to some degree mitigate the increase in inventory associated with excess production. Therefore, it may be difficult to mechanically compensate for all of the increased income. In addition, it does nothing to hold the manager responsible for the poor decisions from the organization's standpoint. 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 Production units - Sales units Excess production ratio 27,000 27,000 = 27,000 = 1 .
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