Johnson Corporation sells primarily two products: (A) consumer cleaners and (B) industrial purifiers.
Its gross margin and components for the past two years are:
|
Year 7 |
Year 6 |
|
|
Sales revenue |
|
|
|
Product A |
$60,000 |
$35,000 |
|
Product B |
30,000 |
45,000 |
|
Total |
90,000 |
80,000 |
|
Deduct cost of goods sold |
||
|
Product A |
50,000 |
28,000 |
|
Product B |
19,500 |
27,000 |
|
Total |
69,500 |
55,000 |
|
Gross margin |
$20,500 |
$25,000 |
In Year 6, the selling price of A is $5 per unit, while in Year 7 it is $6 per unit. Product B sells for $50 per unit in both years. Security analysts and the business press expressed surprise at Johnson”s 12.5% increase in sales and $4,500 decrease in gross margin for Year 7.
Required:
Prepare an analysis statement of the change in gross margin for Year 7 versus Year 6. Discuss and show the effects of changes in quantities, prices, costs, and product mix on gross margin.