A manufacturer reports direct materials of $5 per unit, direct labor of $2 per unit, and variable overhead of $3 per unit. Fixed overhead is $160,000 per year, and the company estimates sales of 16,000 units at a sales price of $22 per unit for the year. The company has no beginning finished goods inventory.

If the company uses absorption costing, compute gross profit assuming (a) 16,000 units are produced and 16,000 units are sold and (b) 20,000 units are produced and 16,000 units are sold. 2. If the company uses variable costing, how much would contribution margin differ if the company produced 20,000 units instead of producing 16,000? Assume the company sells 16,000 units. Hint: Calculations are not required.

Req 1

Req 2

If the company uses absorption costing, compute gross profit assuming (a) 16,000 units are produced and 16,000 units are sold and (b) 20,000 units are produced and 16,000 units are sold. If the company uses variable costing, how much would contribution margin differ if the company produced 20,000 units instead of producing 16,000 ? Assume the company sells 16,000 units. Hint: Calculations are not required