Question

Swisher, Incorporated reports the following annual cost data for its single product:Normal production level 30,000 unitsDirect materials $6.40 per unitDirect labor $3.93 per unitVariable overhead $5.80 per unitFixed overhead $150,000 in total

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 variable costing?
O $60,000 decrease.O $90,000 decrease.O There is no change in gross margin.O $90,000 increase.O $60,000 increase.

Answer 1

There is no change in gross margin

Step-by-step explanation:

Under variable costing, there is no absorption of the fixed costs on the production cost per unit. The contribution margin is given by the income deducted by the variable costs.

In this case, the number of units sold remains the same as before, 30,000 units, while the variable cost per unit also remains the same. Therefore, there is no change in the company's gross margin.

*There would be a change in the gross margin if the company used absorption costing.