Using variable and absorption costing, making decisionsThe 2018 data that follow pertain to Mike’s Magnificent Eyewear, a manufacturer of swimming goggles. (Mike’s Magnificent Eyewear had no beginning Finished Goods Inventory in January 2018.)RequirementsPrepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Mike’s Magnificent Eyewear for the year ended December 31, 2018.Which statement shows the higher operating income? Why?Mike’s Magnificent Eyewear’s marketing vice president believes a new sales promotion that costs $40,000 would increase sales to 235,000 goggles. Should the company go ahead with the promotion? Give your reasoning. Number of goggles produced245,000Number of goggles sold230,00028Sales price per unitVariable manufacturing cost per unitSales commission cost per unit101,960,000Fixed manufacturing overheadFixed selling and administrative costs260,000

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Answered: Number of goggles produced 245,000…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Using variable and absorption costing, making decisions

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

Requirements

Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Mike’s Magnificent Eyewear for the year ended December 31, 2018.
Which statement shows the higher operating income? Why?
Mike’s Magnificent Eyewear’s marketing vice president believes a new sales promotion that costs $40,000 would increase sales to 235,000 goggles. Should the company go ahead with the promotion? Give your reasoning.

Number of goggles produced
245,000
Number of goggles sold
230,000
28
Sales price per unit
Variable manufacturing cost per unit
Sales commission cost per unit
10
1,960,000
Fixed manufacturing overhead
Fixed selling and administrative costs
260,000

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