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 income increase or decrease under variable costing?

Variable costing, comparable to marginal cost in managerial costing, divides incurred expenses into variable and fixed costs. The fixed costs are recorded for the period in which they were incurred and are classified as period costs. The product's cost includes the variable costs, which are regarded as product costs. The fixed costs are also recognized as product expenses, absorbed in the inventory of the items produced but not sold in that period. They are therefore allowed to be carried forward to succeeding periods when the list is used up. This is an alternate cost accounting concept to absorption costing.

Under variable costing, the gross margin will remain constant even if output rises from 30,000 to 50,000 units.

Variable Cost = Direct Material + Direct Labour + Variable Overheads

= $6.40 + $3.93 + $5.80 = $16.13

Particulars 30,000 units 50,000 units

Selling Price 48 48

Less: Variable Costs (16.13) (16.13)

Contribution 31.87 31.87

Total Contribution 956,100 956,100

Less: Fixed Costs (150,000) (150,000)

Profit 806,100 806,100

Therefore, there is no change in the company's income so option E is correct which says there will be no change in gross margin.

Variable costs are absorbed by the product when using variable costing since they are viewed as product costs. Additionally, regardless of activity level and inventory level, fixed costs are recognized as period costs in variable costing and are totally charged to revenue throughout the year.

As a result, the fixed costs are recorded separately and the variable expenses related to the items are allocated to those particular products as they are sold. In other words, when adopting variable costing, the income is unaffected by changes in production volume because the gross margin is solely determined by the volume of goods sold.

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COMPLETE QUESTION:

wisher Incorporated reports the following annual cost data for its single product:

Normal production level 30,000 units

Direct materials $6.40 per unit

Direct labor $3.93 per unit

Variable overhead $5.80 per unit

Fixed overhead $150,000 in total

This product is normally sold for forty-eight dollars per unit.

Required:

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 income increase or decrease under variable costing?

a) $60,000 decrease.

b) ninety thousand decreases.

c) ninety thousand increase.

d) $60,000 increase.

e) No change in gross margin.