E6-58B Absorption and variable costing income statements (Learning objective 6)

The annual data that follow pertain to Goggle Water Optics, a manufacturer of swimming goggles (the company has no beginning inventories):

Sales price	$ 45
Variable manufacturing expense per unit	$ 18
Sales commission expense per unit	$ 14
Fixed manufacturing overhead	$1,980,000
Fixed operating expense	$235,000
Number of goggles produced	220,000
Number of goggles sold	200,000

Requirements

1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Goggle Water Optics for the year.

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

3. The companys 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.