Swola Company Reports the Following Annual Cost Data for Its

question 68

Multiple Choice

Swola Company reports the following annual cost data for its single product. $\begin{array}{ll}\text { Normal production level } & 75,000 \text { units } \\\text { Direct materials } & \$ 1.25 \text { per unit } \\\text { Direct labor } & \$ 2.50 \text { per unit } \\\text { Variable overhead } & \$ 3.75 \text { per unit } \\\text { Fixed overhead } & \$ 300,000 \text { in total }\end{array}$ 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?

• A)$187,500 increase.
• B)$112,500 increase.
• C)There will be no change in gross margin.
• D)$112,500 decrease.
• E)$187,500 decrease.

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Definitions:

Threats and Opportunities

Refers to external factors that could impact a company's performance, where threats could harm it, and opportunities could benefit it.

Core Competencies

The unique strengths or strategic advantages of a business, comprising knowledge, resources, and capabilities that distinguish it in the marketplace.

Competitive Advantages

Unique attributes or capabilities that allow a company to outperform rivals, create greater value for its customers, and achieve superior market position.

Straddling

A strategy where a company seeks to occupy more than one position in a market or industry, often attempting to offer a range of products or services to cover different segments.