Heather, Incorporated Reports the Following Annual Cost Data for Its

question 97

Essay

Heather, Incorporated reports the following annual cost data for its single product:
$\begin{array}{ll}\text { Normal production and sales level } & 60,000 \text { units } \\\text { Direct materials } & \$ 9.00 \text { per unit } \\\text { Direct labor } & \$ 6.50 \text { per unit } \\\text { Variable overhead } & \$ 11.00 \text { per unit } \\\text { Fixed overhead } & \$ 720,000 \text { in total }\end{array}$ This product is normally sold for $56 per unit.If Heather increases its production to 80,000 units while sales remain at the current 60,000 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.

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Definitions:

Sales Increase

The rise in the amount of goods or services sold by a company within a specific period.

Capacity Level

The maximum output or production level that a facility, plant, or business can achieve under normal operations.

Net Working Capital Turnover

A ratio used to measure how effectively a company is using its short-term assets and liabilities to generate revenue.

Total Fixed Assets

The sum of all long-term tangible assets that a company owns and uses in its operations, which are not expected to be consumed or converted into cash within a year.