Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

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

ID: 2569265 • Letter: V

Question

Variable and Absorption Costing During its first year, Walnut, Inc., showed an $99 per-unit profit under absorption costing but would have reported a total profit $88,000 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 $841,500?

Explanation / Answer

a). Fixed Cost per unit :-

= Higher Profit under Absorption costing / Units of production exceeding sales

= $88000 / 500

= $176 Per Unit

b). Sales Price Per Unit :-

Contribution Margin Per Unit = Fixed Cost per unit + Profit Per Unit

= $176 + $99

= $275

Sales Price Per Unit = Contribution Margin Per Unit / Contribution Margin Ratio

= $275 / 62.5%

= $440

c). Variable Cost Per Unit :-

= Selling Price Per Unit - Contribution Margin Per Unit

= $440 - $275

= $165 Per Unit

d). Units Sales Volume if Total Profit under absorption costing was $841500 :-

Sales Units = Total Profit under Absorption costing / per unit profit under absorption costing

= $841500 / $99

= 8500 Units