The annual data that follow pertain to Swimmerz, a manufacturer of swimming goggles (Swimmerz has no beginning inventories):
Sale price........................................................................... $ 39
Variable manufacturing expense per unit.......................... $ 16
Sales commission expense per unit..................................... $ 7
Fixed manufacturing overhead............................... $2,820,000
Fixed operating expense........................................... $ 240,000
Number of goggles produced...................................... 235,000
Number of goggles sold.............................................. 225,000
Requirements
1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Swimmerz for the year.
2. Which statement shows the higher operating income? Why?
3. Swimmerz's marketing vice president believes a new sales promotion that costs $150,000 would increase sales to 235,000 goggles. Should the company go ahead with the promotion? Give your reason.