Kennedy Company makes and sells designer handbags and the production manager is assessing the production level toexecute for the upcoming year. Budgeted sales are 20,000 units and Kennedy uses absorption costing, and the productionmanager is considering 20,000, 25,000 or 30,000 units of production. There is no beginning inventory for the year.The average selling price is $220 per unit with variable production costs of $120 per unit and fixed production cost of$550,000 per year.Required:1)Calculate the expected gross margin for each of the production levels that the production manager is considering.2)If the production manager is compensated on a percentage of gross margin, what production level will they bemotivated to make?3)What is the impact of the bonus structure in place and what recommendations might you make to improve it?

Calculations of expected gross margin for each of the production levels Production level: 20,000…

Answered: Kennedy Company makes and sells…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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