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Variable and Absorption Costing During its first year, Walnut, Inc., showed an $14 per-unit profit under...

Variable and Absorption Costing
During its first year, Walnut, Inc., showed an $14 per-unit profit under absorption costing but would have reported a total profit $16,000 less under variable costing. If production exceeded sales by 1,000 units and an average contribution margin of 62.5% was maintained, what is the apparent:

a. Fixed cost per unit?

$Answer per unit

b. Sales price per unit?

$Answer per unit

c. Variable cost per unit?

$Answer per unit

d. Unit sales volume if total profit under absorption costing was $168,000?

Answer units

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Answer #1

Solution a:

Fixed Cost per unit = Higher Profit under Absorption costing / units higher than sales

= $16000 / 1000 = $16 Per Unit

Solution b:

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

= $16+ $14 = $30

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

= $30 / 62.5% = $48

Solution c:

Variable Cost Per Unit = sales Price Per Unit - Contribution Margin Per Unit

= $48 -$30 = $18 Per Unit

Solution d:

Unit sales = Total Profit under Absorption costing /profit per unit

= $168000 / $14 = 12000 Units

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