Swola Company reports the following annual cost data for its single product. This product is normally sold for $25 per unit. If Swola increases its production to 200,000 units, while sales remain at the current 75,000 unit level, by how much would the company's income increase or decrease under variable costing?
A) $187,500 increase.
B) $112,500 increase.
C) There will be no change in income.
D) $112,500 decrease.
E) $187,500 decrease.

Question

Swola Company reports the following annual cost data for its single product.  This product is normally sold for $25 per unit. If Swola increases its production to 200,000 units, while sales remain at the current 75,000 unit level, by how much would the company's income increase or decrease under variable costing?
A) $187,500 increase. 
B) $112,500 increase. 
C) There will be no change in income. 
D) $112,500 decrease. 
E) $187,500 decrease.

Quizplus · Accepted Answer

There would be no change because fixed costs are expensed in the period in which they are incurred, regardless of the number of units sold.

Swola Company Reports the Following Annual Cost Data for Its