Swola Company reports the following annual cost data for its single product.

Normal production level75,000 unitsDirect materials$1.25 per unitDirect labor$2.50 per unitVariable overhead$3.75 per unitFixed overhead$300,000 in total

This product is normally sold for $25 per unit. If Swola increases its production to 200,000 units, while sales remain at the current 75,000 unit level, by how much would the company's gross margin increase or decrease under absorption costing?

Select one:

a. $187,500 increase.

b. $112,500 increase.

c. There will be no change in gross margin.

d. $112,500 decrease.

e. $187,500 decrease.