Question

Jacquie Inc. reports the following annual cost data for its single product. Normal production and sales level 60,000 units Sales price 56.00 per unit Direct materials 9.00 per unit Direct labor 6.50 per unit Variable overhead 11.00 per unit $720,000 in total Fixed overhead Complete the below table using absorption costing. (Round cost per unit answers to 2 decimal place.) Production volume Cost of goods sold 60,000 units 80,000 units Cost of goods sold per unit Number of units sold Total cost of goods sold

Answer 1

	Production Volume			Working Notes
Cost of goods sold	60000 units	80000 units		Total Fixed overhead will remain unchanged regardless of level of activity
Direct Material	9	9		i.e. 720000/60000 units= 12 per unit and
Direct Labor	6.5	6.5		720000/80000 units= 9 per unit
Variable Overhead	11	11
Fixed overhead	12	9
Cost of goods sold per units      A	38.5	35.5
Number of units sold              B	60000	80000
Total cost of goods sold        A*B	2310000	2840000
Jacquie Inc
Income statement through gross margin
	Sales Volume
	60000 units	80000 units
Sales Revenue(per unit i.e. $56 * total units)	3360000	4480000
Cost of goods sold from above table	2310000	2840000
Gross Margin	1050000	1640000
If jacquie increases its production to 80000 units, while sales remain at the
current 60000 unit level, by how much would the company's gross margin
increase or decrease under absorption costing? Assume company has idle
capacity to double current production.
Number of units sold	60000			Working Notes
Change in fixed overhead cost per unit	3			change in fixed overhead cost per unit	=12-9   =	3
change in cost of goods sold	180000
				For your understanding & reconciliation purpose only
				Cost sheet under absorption costing	units	per unit
				Production Volume	80000
				Direct Material		9	720000
				Direct Labor		6.5	520000
				Variable Overhead		11	880000
Thank You				Fixed overhead			720000
				Cost of manufacturing/production			2840000
				Less : Closing stock of finished goods	20000	35.5	710000
				Cost of goods sold with Inventory			2130000
				Cost of goods sold without Inventory			2310000
				Change in cost of goods sold			180000