Easy Company manufactures one product that is sold for $ 80 per unit. The following information pertains to the companys first year of operation in which it produced 40,000 units (capacity was 50,000 units) and sold 35,000 units.

Manufacturing:

Direct materials $960,000 Direct labor $560,000 Variable manufacturing overhead $80,000

Fixed manufacturing overhead $800,000

Selling, General and Administrative:

Variable selling and administrative $140,000 Fixed selling, general and administrative $420,000

The company operates in Italy. (So direct labor is considered fixed)

Required:

(1) What is the product unit cost under variable costing? (2) What is the product unit cost under absorption costing? (3) What is the product unit cost under absorption if the supplementalrate method is used (pull approach to costing)?

4. (4) What is the total contribution margin?

5. (5) What is the total gross margin under absorption costing?

6. (6) Does the total gross margin change if the pull approach to costing is

   used?

7. (7) Why?