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
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