Swisher,Incorporated Reports the Following Annual Cost Data for Its Single

question 47

Multiple Choice

Swisher,Incorporated reports the following annual cost data for its single product:
$\begin{array}{ll}\text { Normal production level } & 30,000 \text { units } \\\text { Direct materials } & \$ 6.40 \text { per unit } \\\text { Direct labor } & \$ 3.93 \text { per unit } \\\text { Variable overhead } & \$ 5.80 \text { per unit } \\\text { Fixed overhead } & \$ 150,000 \text { in total }\end{array}$


This product is normally sold for $48 per unit.If Swisher increases its production to 50,000 units,while sales remain at the current 30,000 unit level,by how much would the company's gross margin increase or decrease under variable costing?

• A) $60,000 decrease.
• B) $90,000 decrease.
• C) There is no change in gross margin.
• D) $90,000 increase.
• E) $60,000 increase.

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Definitions:

External Cost

Costs of an economic activity that are not borne by the parties involved but are instead imposed on others or society at large.

Private Value

The value of a good or service to an individual or firm for personal use, as opposed to its value to society or the economy at large.

Socially Optimal

A situation or outcome that is best from the society's point of view, where social welfare, including benefits and costs, is maximized.

Economic Well-being

A broad measure of the prosperity and quality of life of individuals or societies, encompassing material, social, and environmental dimensions.