Question
Number of goggles produced 150,000 Number of goggles sold 125,000 Sales price per unit $39 Variable manufacturing cost per unit 10 Sales commission cost per
Number of goggles produced | 150,000 |
Number of goggles sold | 125,000 |
Sales price per unit | $39 |
Variable manufacturing cost per unit | 10 |
Sales commission cost per unit | 3 |
Fixed manufacturing overhead | 1,350,000 |
Fixed selling and administrative costs | 240,000 |
The 2016 data that follow pertain to Al's Awesome EyewearAl's Awesome Eyewear, a manufacturer of swimming goggles. (Al's Awesome EyewearAl's Awesome Eyewear had no beginning Finished Goods Inventory in January 2016.)
Requirement 1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Al's Awesome EyewearAl's Awesome Eyewear for the year ended December 31, 2016. (Round interim calculations to the nearest cent.)Begin by preparing Al's Awesome EyewearAl's Awesome Eyewear's conventional (absorption costing) income statement for the year ended December 31, 2016.
Al's Awesome Eyewear | |||
Income Statement (Absorption Costing) | |||
Year Ended December 31, 2016 | |||
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Operating Income |
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Prepare Al's Awesome EyewearAl's Awesome Eyewear's contribution margin (variable costing) income statement for the year ended December 31, 2016.
Al's Awesome Eyewear | |||
Income Statement (Variable Costing) | |||
Year Ended December 31, 2016 | |||
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Operating Income |
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Requirement 2. Which statement shows the higher operating income? Why?
The
contribution margin conventional income statement shows the higher operating income. The operating income under
absorption variable costing is higher because the units sold
exceeded the units produced. was equal to the units pruduced. was less than the units produced. The difference in operating income between the two income statements is attributable to the
cost of goods sold per unit fixed costs per unit selling and administrative costs per unit variable costs per unit attached to the units
in beginning inventory. in ending inventory. sold.
Requirement 3.
Al's Awesome EyewearAl's Awesome Eyewear's marketing vice president believes a new sales promotion that costs $55,000 would increase sales ton130,000 goggles. Should the company go ahead with the promotion? Give your reasoning.The company
should not should go ahead with the promotion because the additional
sales revenue generalted from the promotion is less than contribution margin generated from the promotion is less than sales revenue generalted from the promotion exceeds contribution margin generated from the promotion exceeds the additional cost of the promotion.
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