Question
The annual data that follow pertain to Rays, a manufacturer of swimming goggles (the company had no beginning inventory): Sales price. . . . .
The annual data that follow pertain to Rays, a manufacturer of swimming goggles (the company had no beginning inventory):
Sales price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $43 |
Variable manufacturing expense per unit. . . . . | $17 |
Sales commission expense per unit. . . . . . . . . | $9 |
Fixed manufacturing overhead. . . . . . . . . . . . . | $1,640,000 |
Fixed operating expenses. . . . . . . . . . . . . . . . . | $230,000 |
Number of goggles produced. . . . . . . . . . . . . . | 205,000 |
Number of goggles sold. . . . . . . . . . . . . . . . . . | 190,000 |
Rays
Income Statement (Absorption Costing)
For the Year Ended December 31
Sales revenue $8,170,000
Less: Cost of goods sold: 4,750,000
Gross profit : 3,420,000
Less: Operating expenses : 1,940,000
Operating income: $1,480,000
(VARIABLE COST)
Sales revenue----------$8,170,000
Less: Variable expenses
Variable cost of goods sold----------$3,230,000
Variable operating expenses----------1,710,000
Contribution margin ---------------3,230,000
Less: Fixed expenses
Fixed manufacturing overhead----------1,640,000
Fixed operating expenses ------------230,000
Operating income ---------------$1,360,000
(QUESTION TO ANSWER) The company marketing vice president believes a new sales promotion that costs $165,000 would increase sales to 205,000 goggles. Should the company go ahead with the promotion? Give your reason.
Use the contribution margin income statement format to evaluate sales promotion. (PLEASE SHOW WORK ON HOW YOU GET YOUR ANSWER)
Increase in contribution margin |
|
Increase in fixed expenses |
|
Increase in operating income |
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