Question

Ramort Company reports the following cost data for its single product. The company regularly sells 20,600 units of its product at a price of $69 per unit. 13 per unit 15 per unit Direct materials Direct labor Overhead costs for the year Variable overhead Fixed overhead per year Selling and administrative costs for the year Variable Fixed Normal production level (in units) $ 6 per unit $41,200 $ 8 per unit $ 65,800 20,600 units If Ramort doubles its production to 41,200 units while sales remain at the current 20,600-unit level, by how much would the company's gross margin increase or decrease under absorption costing? Gross margin by

Answer 1

Product cost per unit Under absorption Costing

	Present	Proposed
Direct material	13	13
Direct labor	15	15
Variable overhead	6	6
Fixed overhead	41200/20600 = 2	41200/41200 = 1
Total	36	35

Difference Cost decrease by (1*20600) = $20600

Gross margin increase by $20600