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The absorption cost budget of a company shows a profit per unit of $5. This is based on production of 15,000 units and sales of 13.000 units. If all fixed costs are related to production and a change to a marginal cost profit produces a budgeted decrease in profit of $2.000, the contribution per unit must be
A $4.00B $4.80
C $5.00
D $6.00
The answer is ‘D’.
Sir in this question, we have found fixed cost per unit which is $1. Why we are adding this in profit to find contribution?Contribution per unit = Selling price – Marginal cost
Profit per unit = Contribution per unit – Fixed cost per unit.
Or
Contribution per unit = Profit per unit + Fixed cost per unit
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