Question

During its first year, Concord, Inc., showed a $20 per-unit profit under absorption costing but would have reported a total profit $16,800 less under variable costing. If production exceeded sales by 600 units and an average contribution margin of 60% was maintained, what is the apparent:

a. Fixed cost per unit?

Answer 1

The fixed cost per unit for Concord, Inc. is calculated to be $8 by taking the difference in profit reported under absorption and variable costing, which is $16,800, subtracting the variable cost of unsold units, and dividing by the units produced in excess.

Step-by-step explanation:

To ascertain the fixed cost per unit, we need to understand the difference in profit reporting between absorption and variable costing. Concord, Inc. reported $16,800 less in total profit under variable costing. Since production exceeded sales by 600 units and the contribution margin is 60%, we can calculate the fixed cost component. First, we calculate the total variable cost deducted in variable costing which is not deducted in absorption costing, by multiplying the additional units produced (600 units) by the profit per unit under absorption costing ($20).

This results in $12,000 (600 units x $20/unit). The remaining difference in reported profit of $4,800 ($16,800 - $12,000) represents the total fixed costs that were not allocated to the cost of goods sold under variable costing. To find the fixed cost per unit, we divide the total fixed costs by the number of units produced in excess of the units sold, which is 600 units. So, the fixed cost per unit is $8 ($4,800 / 600 units).