Dataport Company reports the following annual cost data for its single product:Normal production and sales level89,000 unitsDirect materials$14 per unitDirect labor$21 per unitVariable overhead$27 per unitFixed overhead$3,738,000 in totalThis product is normally sold for $230 per unit. If Dataport increases its production to 100,000 units, while sales remain at the current 89,000 unit level, by how much would the company's gross margin increase or decrease under absorption costing? Assume the company has idle capacity to increase current production.
What will be an ideal response?
$3,738,000/89,000 units = $42 FOH per unit at 89,000 unit level
$3,738,000/100,000 units = $37.38 FOH per unit at 100,000 unit level
$42 - 37.38 = $4.62 less FOH cost in each unit sold
$4.62 × 89,000 = $411,180 gross margin increase
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