It is important to notice that although production and sales volumes in each period are different,

over the full period, total production equals sales volume. The total cost of sales is the same and

therefore the total profit is the same by either method of accounting. Differences in profit in any

one period are merely timing differences which cancel out over a longer period of time.

(a) Absorption costing. The absorption rate for fixed production overhead is $1,500/1,500 units $1

per unit. The fully absorbed cost per unit $5.