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
Requirements
1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Aqua Goggles for the year.
2. Which statement shows the higher operating income? Why?
3. 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.