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.
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