The annual data that follows pertain to Sea Down There
a manufacturer of swimming goggles​ (the company had no beginning​ inventory):
sales Price $ 49
Variable Manufacturing expense per unit $22
sales commission expense per unit $ 11
fixed Manufacturing overhead $2760000
fixed operating expenses $245000
number of goggles produced $ 230000
number og goggles sold $ 215000
Requirements
1. Prepare both conventional​ (absorption costing) and contribution margin​ (variable costing) income statements for
Sea Down There
for the year.
2. Which statement shows the higher operating​ income? Why?
3. The company marketing vice president believes a new sales promotion that costs
$ 150 comma 000
would increase sales to
230 comma 000
goggles. Should the company go ahead with the​ promotion? Give your reason.
Requirement 1. Prepare both conventional​ (absorption costing) and contribution margin​ (variable costing) income statements for
Sea Down There
for the year. Begin with the conventional​ (absorption costing) income statement.
Sea Down There
Income Statement (Absorption Costing)
For the Year Ended December 31
Sales revenue $10,535,000
Less:
Cost of goods sold 7,310,000
Gross profit 3,225,000
Less:
Operating expenses 2,610,000
Operating income $615,000
Now​ let's prepare the contribution margin​ (variable costing) income statement for
Sea Down There
for the year.
Sea Down There
Contribution Margin (Variable Costing) Income Statement
For the Year Ended December 31
Sales revenue $10,535,000
Less:
Variable expenses
Variable operating expenses $2,365,000
Variable cost of goods sold 4,730,000
Contribution margin 3,440,000
Less:
Fixed expenses
Fixed manufacturing overhead 2,760,000
Fixed operating expenses 245,000
Operating income $435,000
Requirement 2. Which statement shows the higher operating​income? Why?
Absorption costing operating income is
higher than
variable costing operating income. This is because absorption costing
defers $
180,000
of fixed manufacturing overhead as an asset in ending inventory. In contrast, variable costing expenses
all of
the fixed manufacturing overhead during the year.
Variable costing expenses $
more
costs during the year, so variable costing operating income is $
less
than absorption costing income the year.
Choose from any list or enter any number in the input fields and then click Check Answer.
please help with the variable costing expenses and the rest of the problem .