The 2016 data that follow pertain to Sam’s Superb Eyewear, a manufacturer of swimming goggles. (Sam’s Superb Eyewear had no beginning Finished Goods Inventory in January 2016.)
Number of goggles produced .........210,000
Number of goggles sold ...........180,000
Sales price per unit ............. $ 26
Variable manufacturing cost per unit ...... 9
Sales commission cost per unit ......... 1
Fixed manufacturing overhead .........1,680,000
Fixed selling and administrative costs ..... 180,000
Requirements
1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Sam’s Superb Eyewear for the year ended December 31, 2016.
2. Which statement shows the higher operating income? Why?
3. Sam’s Superb Eyewear’s marketing vice president believes a new sales promotion that costs $120,000 would increase sales to 190,000 goggles. Should the company go ahead with the promotion? Give your reasoning.