Question

Jacquie Inc. reports the following annual cost data for its single product.

Normal production and sales level		67,000	units
Sales price	$	56.70	per unit
Direct materials	$	9.70	per unit
Direct labor	$	7.20	per unit
Variable overhead	$	11.70	per unit
Fixed overhead	$	944,700	in total

Complete the below table using absorption costing. (Round cost per unit answers to 2 decimal places.)

Production volume Cost of goods sold: 67,000 units 94,000 units Cost of goods sold per unit Number of units sold Total cost of goods sold Jacquie Inc. Income statement through gross margin Sales volume 67,000 units 67,000 units If Jacquie increases its production to 94,000 units, while sales remain at the current 67,000-unit level, by how much would the company’s gross margin increase or decrease under absorption costing? Assume the company has idle capacity to double current production. Number of units sold Change in fixed overhead cost per unit Change in cost of goods sold:

Answer 1

1. According to the questions, we need to complete the table using absorption costing:

	Production volume
Cost of goods sold:	67,000 units	94,000 units
Direct materials	$9.70	$9.70
Direct labour	$7.20	$7.20
Variable overhead	$11.70	$11.70
Fixed Overhead (wn.1)	$14.10	$10.05
Cost of goods sold per unit(a)	$42.70	$38.65
Number of units sold (b)	67000 units	67000 units
Total cost of goods sold (a*b)	$2,860,900	$2,589,550

Working Notes:-

1. Fixed overhead for 67,000 units= $944,700/ 67000= $14.10

Fixed overhead for 94000 units= $944,700/ 94000= $10.05

2. Income statement through gross margin:

	Sales volume
	67000 units	67000 units
Sales revenue ($56.70* 67000 units)	$3,798,900	$3,798,900
Less: Cost of goods sold	$2,860,900	$2,589,550
Gross margin-	$938,000	$1,209,350

3. If Jacquie increases its production to 94,000 units, while sales remain at the current 67,000-unit level, then the gross margin will change as shown below:

Change in gross margin= $1,209,350- $938,000= $271,350

The gross margin increased by $271,350.

4.

Number of units sold	67000
Change in fixed overhead cost per unit ($14.10- $10.05)( wn.1)	$4.05
Change in cost of goods sold:($2,860,900-$2,589,550)	$271,350