Problem 8-6

Chapter Eight I Return on invested Capital and Profitability Analysis 495 Abon Corporation sells primarily two products: (A) consumer cleaners and (B) industrial puri- fes is gross margin and components for the past two years are as follows: PROBLEM 8-6 Analyzing Changes Grour Margit Year 7 Year 6 Sales revenue Product A Product B. Total... $60,000 30,000 90,000 $35,000 45,000 80,000 .. Deduct cost of goods sold Product A.. Product B. Total..... Gross margin.. 50,000 28,000 19,500 27,000 69,500 55,000 $20,500 $25,000 In Year 6, the selling price of A is $5 per unit, while in Year 7 it is 86 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: CHECK Net decrease, $(4,500) 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