Variable and Absorption Costing During its first year, Walnut, Inc., showed a $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: Fixed cost per unit? Sales price per unit? Variable cost per unit? Unit sales volume if total profit under absorption costing was $168,000?

Answer and Explanation:

The computation is shown below:

Fixed cost per unit is

= Higher Profit under Absorption costing ÷  units exceeded than sales

= $16,000 ÷ 1,000 units

= $16 per unit

Sales price per unit

= Contribution Margin Per Unit ÷ Contribution Margin Ratio

= ($16 + $14) ÷ (62.50%)

= $48

Variable Cost Per Unit is

= Sales Price Per Unit - Contribution Margin Per Unit

= $48 - $30

= $18 per unit

Unit sales volume is

= Total Profit under Absorption costing ÷ profit per unit

= $168,000 ÷ $14 per unit

= 12000 units

We simply applied the above formulas

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