The 2018 data that follow pertain to Eli’s Electric Eyewear, a manufacturer of swimming goggles. (Eli’s Electric Eyewear had no beginning Finished Goods Inventory in January 2018.)

Number of goggles produced .................................................245,000 

Number of goggles sold........................................................... 215,000 

Sales price per unit ..........................................................................$ 22 

Variable manufacturing cost per unit ...............................................8 

Sales commission cost per unit .........................................................5 

Fixed manufacturing overhead ...........................................1,470,000 

Fixed selling and administrative costs ...................................250,000 

Requirements 

1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Eli’s Electric Eyewear for the year ended December 31, 2018. 

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

3. Eli’s Electric Eyewear’s marketing vice president believes a new sales promotion that costs $60,000 would increase sales to 220,000 goggles. Should the company go ahead with the promotion? Give your reasoning.