I. Absorption costing and over-production

Under absorption costing, a company had the following per un4 costs when 10.000 un4s were produced.

Direct labor..................................$2

Direct material................................3

Variable overhead............................4

Total variable cost............................9

Fixed overhead ($50,000/10,000 units.....5

Total production cost per unit............$14

1. Compute the compan's total production cost per unit if 25.000 units had been produced.

2. Why might a manager of a company using absorption costing produce more units than can currently be sold?

II. Computing contribution margin

AirTel Company sold 10.000 units of Its product at a price of $80 per unit. Total variable cost is $50 per unit consisting of $40 in variable production cost and $10 m variable selling and administrative cost. Compute the contribution margin.

III. Computing unit cost under absorption costing

Rajeev Company reports the following information regarding its production costs. Compute its production cost per unit under absorption costing.

Direct material................................$10 per unit

Direct labor....................................$20 per unit

Overhead costs for the year

Variable overhead...........................$10 per unit

Fixed overhead.................................$160,000

Units produces..............................20,000 units

IV. Production level, absorption costing, and gross margin

Tramor Company reports the following cost data for its single product. The company regularly sells 20.000 units 04 its product at a price of $80 per un4. If Tramor doubles its production to 40.000 units white sales remain at the current 20.000-unit level, by how much would the company's gross profit increase or decrease under absorption costing?

Direct materials......................................$10 per units

Direct labor..........................................$12 per units

Overhead costs for the year

Variable overhead....................................$3 per units

Fixed overhead per year.................................$40,000

Normal production level (in units).................20,000 units