Variable and Absorption Costing During its first year, Walnut, Inc., showed an $

Question

Variable and Absorption Costing During its first year, Walnut, Inc., showed an $45 per-unit profit under absorption costing but would have reported a total profit $40,000 less under variable costing. If production exceeded sales by 500 units and an average contribution margin of 62.5% was maintained, what is the apparent: a. Fixed cost per unit? $Answer 0 per unit b. Sales price per unit? $Answer 0 per unit c. Variable cost per unit? $Answer 0 per unit d. Unit sales volume if total profit under absorption costing was $198,000?

Explanation / Answer

a.) Fixed Cost per uniit = 40000/500 = $80.

b.) Sales Price per unit = Contribution margin per unit / Contribution margin percent

                                     = (45+80) / 0.625    = $200.

c.) Variable cost per unit = 200 - 125 = $75.

d.) Unit sales volume if total profit under absorption costing was $198,000= 198000/45 = 4,400 units

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