E6-40A: Absorption and variable costing income statements (Learning Objective 6)

The annual data that follow pertain to Aqua Goggles, a manufacturer of swimming goggles (the company had no beginning inventory):

Requirements

Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Aqua Goggles for the year.

Which statement shows the higher operating income? Why?

The company marketing vice president believes a new sales promotion that costs $140,000 would increase sales to 220,000 goggles. Should the company go ahead with the promotion? Give your reason.

End of Chapter: Cost Behavior E6-40A Absorption and variable costing income statements (Learning Objective 6) The annual data that follow pertain to Aqua Goggles, a manufacturer of swimming goggles (the company had no beginning inventory) Sales price 45 Variable manufacturing expense per unit 20 Sales commission expense per unit 7 Fixed manufacturing overhead $ 1,980,000 Fixed operating expenses $ 250,000 Number of goggles produced 220,000 Number of goggles sold 198,000