Academy Press produces textbooks for college courses. The company recently hired
ID: 2412003 • Letter: A
Question
Academy Press produces textbooks for college courses. The company recently hired a new? editor, Leslie White, 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. The following information is available for the fall semester 2013?:
27,000 Books
29,700 Books
35,100 Books
Revenues
Cost of Goods Sold
Production-Volume Variance
Net Cost of Goods Sold
27,000 Books
29,700 Books
35,100 Books
Beginning Inventory
books
books
books
Production
Sales
Ending Inventory
books
books
books
Cost Per Book
Cost Per Inventory
27,000 Books
29,700 Books
35,100 Books
Gross Margin
Ending Inventory Change
Adjusted Gross Margin
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
27,000
/
=
29,700
/
=
35,100
/
=
27,000 Books
29,700 Books
35,100 Books
Revenues
Cost of Goods Sold
Production-Volume Variance
Net Cost of Goods Sold
Estimated sales Beginning inventory Average selling price 81 Variable production costs $48 per book Fixed production costs 648,000 per semester 27,000 books 0 books per book The fixed cost allocation rate is based on expected sales and is therefore equal to $648,000/27,000 books $24 per book.Explanation / Answer
* [$ 648,000 / 29,700 ] x ( 29,700 - 27,000) = $ 58,909. ( Production volume variance would not be caused by variable costs)
** [ $ 648,000 / 35,100 ] x ( 35,100 - 27,000) = $ 149,538
Expected ending inventory:
Excess production ratio :
Production in Units 27,000 Books 29,700 Books 35,100 Books Revenues ( 27,000 x $ 81) $ 2,187,000 $ 2,187,000 $ 2,187,000 Cost of Goods Sold 1,944,000 1,944,000 1,944,000 Production - Volume Variance 0 58,909 * 149,538 ** Net Cost of Goods Sold $ 1,944,000 $ 1,885,091 $ 1,794,462 Gross Margin 243,000 301,909 392,538