Jacquie Inc. reports the following annual cost data for its single product. Norm

Question

Jacquie Inc. reports the following annual cost data for its single product. Normal production and sales level 61,000 units Sales price $ 56.10 per unit Direct materials $ 9.10 per unit Direct labor $ 6.60 per unit Variable overhead $ 11.10 per unit Fixed overhead $ 750,300 in total If Jacquie increases its production to 82000 units while sales remain at the current 61000 unit level, by how much would the company's gross margin increase or decrease under absorpotion costing? Assume the company has idle capcity to double current production.

Explanation / Answer

Fixed over head per unit=750300/61000=12.3
BEfore increase in production
=(56.1-(9.1+6.6+11.1+12.3))*(61000)=$1,037,000

After increase in production
Fixed over head per unit=750300/82000=9.15
=(56.1-(9.1+6.6+11.1+9.15))*(61000)=$1,229,150

The gross margin increased by $192,150

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