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Chapter 21: Q-21-8RQ (page 1167)

Explain how increasing production can increase gross profit when using absorption costing.

Short Answer

Expert verified

Answer

Gross profit can be increased by reducing fixed manufacturing overhead per unit.

Step by step solution

01

Gross profit under absorption costing

Gross profit under absorption costing is calculated by reducing the cost of goods sold from sales revenue. Cost of goods sold consists of both variable and fixed cost.

02

how increasing production can increase gross profit when using absorption costing.

When production increases the fixed manufacturing cost per unit decreases which results in higher gross profit.

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Most popular questions from this chapter

What is absorption costing?

Why is it appropriate to use variable costing when planning production in the short term?

Question: Computing absorption costing operating income

Refer to the information for Concord, Inc.

Requirements

  1. Using absorption costing, calculate the unit product cost.
  2. Prepare an income statement using the traditional format.

Use the following information for Exercises E21-14 and E21-15.

Concord, Inc. has collected the following data for November (there are no beginning inventories):

Units produced and sold 500 units Sales price $ 450 per unit Direct materials 64 per unit Direct labor 68 per unit Variable manufacturing overhead 26 per unit Fixed manufacturing overhead 7,500 per month Variable selling and administrative costs 15 per unit Fixed selling and administrative costs 4,400 per month

Hayden Company has 50 units in Finished Goods Inventory at the beginning of the accounting period. During the accounting period, Hayden produced 150 units and sold 200 units for \(150 each. All units incurred \)80 in variable manufacturing costs and \(20 in fixed manufacturing costs. Hayden also incurred \)7,500 in Selling and Administrative Costs, all fixed. Calculate the operating income for the year using absorption costing and variable costing.

Analyzing profitability analysis, service company Burlington Internet Services is an Internet service provider for commercial and residential customers. The company provided the following data for its two types of customers for the month of August:

For each type of customer, determine both the contribution margin per customer and the contribution margin ratio. Round to two decimal places.

Which type of service is more profitable?

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