The annual data that follow pertain to Goggles Only, a manufacturer of swimming goggles. (Goggles Only had no beginning inventories.) (Click the icon to view the data.) Requirements 1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Goggles Only for the year. 2. Which statement shows the higher operating income? Why? Reconcile the difference between the two statements. 3. Goggles Only's marketing vice-president believes a new sales promotion that costs $180,000 would increase sales to 240,000 goggles. Should the company go ahead with the promotion? Give your reason. C---- Goggles Only Conventional (Absorption Costing) Income Statement For the Year Ended December 31 Operating income Now let's prepare the contribution margin (variable costing) income statement for Goggles Only for the year. (For entries with a zero balance, make sure to enter "0" in the appropriate cell.) Goggles Only Contribution Margin (Variable Costing) Income Statement Goggles Only Contribution Margin (Variable Costing) Income Statement For the Year Ended December 31 Variable expenses: Variable cost of goods sold: Fixed expenses: Operating income Requirement 2. Which statement shows the higher operating income? Why? Reconcile the difference between the two statements. the Absorption costing operating income is variable costing operating income. This is because absorption costing defers $of fixed manufacturing overhead as an asset in ending inventory. In contrast, variable costing expenses fixed manufacturing overhead during the year. Variable costing expenses $ costs during the year, so variable costing operating income is $ than absorption costing income during the year. Reconcile the difference between the two statements. (For entries with a zero balance, make sure to enter "0" in the appropriate cell. Abbreviation used: FMOH = fixed manufacturing overhead.) Absorption costing net income Add: FMOH released from inventory Less: FMOH deferred to El Variable costing net income Requirement 3. Goggles Only's marketing vice-president believes a new sales promotion that costs $180,000 would increase sales to 240,000 goggles. Should the company go ahead with the promotion? Give your reason. Use the contribution margin income statement format to evaluate the sales promotion. Increase in contribution margin Increase in fixed expenses Increase operating incom Goggles Only with the promotion because the increase in contribution margin the increase in fixed costs. Data table Sale price.. Variable manufacturing expense per unit Sales commission expense per unit Fixed manufacturing overhead Fixed operating expenses Number of goggles produced Number of goggles sold. Print Done $ - 43 17 11 2,400,000 280,000 240,000 225,000 X
