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 67,000 units Sales price $ 56.70 per unit Direct materials $ 9.70 per unit Direct labor $ 7.20 per unit Variable overhead $ 11.70 per unit Fixed overhead $ 944,700 in total Production volume Cost of goods sold 67,000 units 94,000 units Cost of goods sold per unit Total cost of goods sold Jacquie Inc. Income statement through gross margin Sales volume 67,000 units 67,000 units If Jacquie increases its production to 94,000 units, while sales remain at the current 67,000 unit level, by how much would the company's gross margin increase or decrease under absorption costing? Assume the company has idle capacity to double current production. Number of units sold Change in fixed overhead cost per unit Change in cost of goods sold

Explanation / Answer

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Answer =1 ) CALCULATION OF THE PRODUCTION COST PER UNIT AS PER ABOSRPTION COSTING 67000 units 94000 Units Particulars Amount Amount Direct Materials $                   9.70 $                              9.70 Direct Labour $                   7.20 $                              7.20 Variable Manufacturing Overhead $                11.70 $                            11.70 Fixed Cost $                14.10 $                            10.05 Product Cost Per Unit $                42.70 $                            38.65 Caclualtion of recovery rate of Fixed Expenses =(Production 67,000 units) Fixed Expesnes = $          9,44,700 No. of units Sold = $              67,000 Cost Per unit = $                14.10 Caclualtion of recovery rate of Fixed Expenses =(Production 94,000 units) Fixed Expesnes = $          9,44,700 No. of units Sold = $              94,000 Cost Per unit = $                10.05 CALCULATION OF THE COST OF GOODS SOLD   PRODUCTION VOLUME 67000 UNITS 94000 UNITS Production Cost $        28,60,900 $                   36,33,100 (67000*42.7) (94000*38.65) Less : Closing Stock   $                   10,43,550 (27000 units * 38.65) Cost of Goods Sold $        28,60,900 $                   25,89,550 Number of units Sold                  67,000                              94,000 Total Cost of Goods Sold $        28,60,900 $                   25,89,550 INCOME STATEMENT UNDER ABSORPTION COSTING Sales (A) (67000 * 56.70) $        37,98,900 $                   37,98,900 Production Cost $        28,60,900 $                   36,33,100 (67000*42.7) (94000*38.65) Less : Closing Stock   $                   10,43,550 (27000 units * 38.65) Cost of Goods Sold (B) $        28,60,900 $                   25,89,550 Gross Margin $          9,38,000 $                   12,09,350 Difference in Gross Margin $          2,71,350 IF THE PRODUCTION INCREASE FROM THE 67000 TO 94,000 UNITS THEN THE GROSS MARGIN WILL INCREASE BY = $          2,71,350

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