Swisher,Incorporated reports the following annual cost data for its single product:
$\begin{array}{ll}
\text { Normal production level } & 30,000 \text { units } \
\text { Direct materials } & \$ 6.40 \text { per unit } \
\text { Direct labor } & \$ 3.93 \text { per unit } \
\text { Variable overhead } & \$ 5.80 \text { per unit } \
\text { Fixed overhead } & \$ 150,000 \text { in total }
\end{array}$

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 gross margin increase or decrease under variable costing?
A) $60,000 decrease.
B) $90,000 decrease.
C) There is no change in gross margin.
D) $90,000 increase.
E) $60,000 increase.

Question

Swisher,Incorporated reports the following annual cost data for its single product:
$\begin{array}{ll}
\text { Normal production level } & 30,000 \text { units } \
\text { Direct materials } & \$ 6.40 \text { per unit } \
\text { Direct labor } & \$ 3.93 \text { per unit } \
\text { Variable overhead } & \$ 5.80 \text { per unit } \
\text { Fixed overhead } & \$ 150,000 \text { in total }
\end{array}$

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 gross margin increase or decrease under variable costing?
A) $60,000 decrease.
B) $90,000 decrease.
C) There is no change in gross margin.
D) $90,000 increase.
E) $60,000 increase.

Quizplus · Accepted Answer

Under variable costing, fixed overhead costs are not allocated to individual units, so changes in production levels do not affect the gross margin. The gross margin remains unchanged as it is based on sales, not production.

Swisher,Incorporated Reports the Following Annual Cost Data for Its Single