Absorption and variable costing income statements (Learning Objective 7)

(Appendix) The 2008 data that follow pertain to Rays, a manufacturer of swimming goggles (Rays has no beginning inventories in January 2008):

Requirements 1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Rays for the year ended December 31, 2008.
2. Which statement shows the higher operating income? Why?
3. Rays’ marketing vice president believes a new sales promotion that costs $150,000 would increase sales to 200,000 goggles. Should the company go ahead with the promotion? Give your reason.

Sales price...... Variable manufacturing expense per unit.. Sales commission expense per unit Fixed manufacturing overhead Fixed operating expenses. Number of goggles produced. Number of goggles sold.............. $ 35 15 5 2,000,000 250,000 200,000 185,000