Question

Swisher, Incorporated reports the following annual cost data for its single product: This product is normally sold for $48 per unit. If Swisher increases its production to 50,000 units, while sales remain at the current 30,000 unit level, by how much would the company's income increase or decrease under absorption costing

Answer 1

$60,000 increase.

Step-by-step explanation:

Calculation to determine by how much would the company's gross margin increase or decrease under absorption costing

First step is to calculate FOH per unit at 30,000 unit level

FOH per unit=$150,000/30,000 units

FOH per unit = $5 FOH per unit

Second step is to calculate FOH per unit at 50,000 unit level

FOH per unit=$150,000/50,000 units

FOH per unit= $3 FOH per unit

Now let determine by how much would the company's gross margin increase or decrease under

Gross margin=($5 - $3)*30,000

Gross margin = $2 x 30,000

Gross margin = $60,000 increase

Therefore by how much would the company's gross margin INCREASE under absorption costing is $60,000