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Why do we have fluctuating gross margins?
Member rating: No Rating | Words: | Submitted: Sun Jul 25 2004
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Why do we have fluctuating gross margins? Anagene Inc. established itself in an emerging market that features fluctuating sales. The fast growth in the genetics market and the emergence of new customers makes it difficult for our analysts to project future sales. In the past, Anagene sold workstations with four cartridges; however, our current marketing strategy focuses on selling more expensive individual cartridges. Another reason for fluctuating sales margins is customers reusing cartridges instead of purchasing new cartridges. Expected demand is the basis for budgeted volume. Therefore, budgeted volume adversely affects pricing and gross margin stability because Anagene has fluctuating sales. Anagene's use of a volatile budgeted volume as the denominator volume leads to varying allocated fixed overhead costs (Exhibit A). Assigning budgeted volume to fixed overhead costs causes gross margin to fluctuate (in this case decrease) in the long run. If management uses gross margin as the basis for pricing...
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