Asked by Marquel WindyBoy on Apr 24, 2024
Verified
Heather,Incorporated reports the following annual cost data for its single product:
This product is normally sold for $56 per unit.If Heather increases its production to 80,000 units while sales remain at the current 60,000 unit level,by how much would the company's gross margin increase or decrease under absorption costing? Assume the company has idle capacity to increase current production.
Gross Margin
The difference between sales revenue and the cost of goods sold, expressed as a percentage of sales.
Absorption Costing
A method of inventory costing that includes all manufacturing costs, both variable and fixed, in the cost of a product.
Idle Capacity
The available but unused capacity of a company to produce goods or services without incurring additional fixed costs.
- Explore the repercussions of cost assignment strategies on the earnings statements under diverse costing methods.
Verified Answer
JM
Jolene MaciasMay 02, 2024
Final Answer :
$720,000/60,000 units = $12 FOH per unit at 60,000 unit level
$720,000/80,000 units = $9 FOH per unit at 80,000 unit level
$12 - 9 = $3 less FOH cost in each unit sold
$3 × 60,000 = $180,000 gross margin increase
$720,000/80,000 units = $9 FOH per unit at 80,000 unit level
$12 - 9 = $3 less FOH cost in each unit sold
$3 × 60,000 = $180,000 gross margin increase
Learning Objectives
- Explore the repercussions of cost assignment strategies on the earnings statements under diverse costing methods.