Computing absorption costing gross profit Refer to your answers to Short Exercise S21-6. Product X sells for $175 per unit. Assume no beginning inventories. Calculate the gross profit using absorption costing when Adamson:
a. Produces and sells 2,000 units.
b. Produces 2,500 units and sells 2,000 units
c. Produces 5,000 units and sells 2,000 units.

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Variable costs (including direct labor, direct materials and variable overhead) = $80 per units

Fixed overhead = $150,000

a) If Adamson produces 2,000 units, the total cost per unit = $80 + ($150,000 / 2,000) = $80 + $75 = $155

gross profit = total sales revenue - total cogs = (2,000 x $175) - (2,000 x $155) = $350,000 - $310,000 = $40,000

b) If Adamson produces 2,500 units, the total cost per unit = $80 + ($150,000 / 2,500) = $80 + $60 = $140

gross profit = total sales revenue - total cogs = (2,000 x $175) - (2,000 x $140) = $350,000 - $280,000 = $70,000

c)  If Adamson produces 5,000 units, the total cost per unit = $80 + ($150,000 / 5,000) = $80 + $30 = $110

gross profit = total sales revenue - total cogs = (2,000 x $175) - (2,000 x $110) = $350,000 - $220,000 = $130,000

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