Question

Swisher, Incorporated reports the following annual cost data for its single product: Normal production level 30,000units Direct materials$6.40per unit Direct labor$3.93per unit Variable overhead$5.80per unit Fixed overhead$150,000in 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

Answer 1

The company's income would decrease by $422,600.

Step-by-step explanation:

The Variable Costing includes only variable manufacturing costs in product costs.Fixed and non-manufacturing costs are treated as period costs.

Prepare a Differential Analysis for an additional 20,000 units

Differential Analysis for an additional 20,000 units

Additional Costs :

Direct materials ($6.40 × 20,000) $128,000

Direct labor ($3.93× 20,000) $78,600

Variable overhead ($5.80× 20,000) $116,000

Fixed Overheads ($5 × 20,000) $100,000

Incremental Cost $422,600

Conclusion:

The company's income would decrease by $422,600.