Swisher, Incorporated reports the following annual cost data for its single product: 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 absorption costing?
A) $60,000 decrease.
B) $90,000 decrease.
C) There is no change in income.
D) $90,000 increase.
E) $60,000 increase.

Question

Swisher, Incorporated reports the following annual cost data for its single product:  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 absorption costing?
A) $60,000 decrease. 
B) $90,000 decrease. 
C) There is no change in income. 
D) $90,000 increase. 
E) $60,000 increase.

Quizplus · Accepted Answer

$150,000/30,000 units = $5 FOH per unit at 30,000 unit level
$150,000/50,000 units = $3 FOH per unit at 50,000 unit level
$5 − 3 = $2 less FOH cost in each unit sold
$2 × 30,000 = $60,000 increase

Swisher, Incorporated Reports the Following Annual Cost Data for Its