The 2018 data that follow pertain to Mike’s Magnificent Eyewear, a manufacturer of swimming goggles. (Mike’s Magnificent Eyewear had no beginning Finished Goods Inventory in January 2018.) 

Number of goggles produced ................................245,000 

Number of goggles sold.......................................... 230,000 

Sales price per unit ........................................................$ 28 

Variable manufacturing cost per unit ............................10 

Sales commission cost per unit ........................................2 

Fixed manufacturing overhead ............................1,960,000 

Fixed selling and administrative costs................... 260,000

Requirements 

1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Mike’s Magnificent Eyewear for the year ended December 31, 2018. 

2. Which statement shows the higher operating income? Why? 

3. Mike’s Magnificent Eyewear’s marketing vice president believes a new sales promotion that costs $40,000 would increase sales to 235,000 goggles. Should the company go ahead with the promotion? Give your reasoning.