Swola Company reports the following annual cost data for its single product. Normal production level 75,000 units Direct materials $1.25 per unit Direct labor $2.50 per unit Variable Overhead $3.75 per unit Fixed Overhead $300,000 in total 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 gross margin increase or decrease under absorption costing?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Swola Company reports the following annual cost data for its single product.
Normal production level 75,000 units
Direct materials $1.25 per unit
Direct labor $2.50 per unit
Variable
Fixed Overhead $300,000 in total
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 gross margin increase or decrease under absorption costing?
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