Question

The annual data that follows portanto Goggles Onlya manufacturer of Co the icon to view the data) Google (the con Requirements 1. Prepare both conventional absorption costing and contribution on t ing income statements for God Only for the year 2. Which statement shows the higher operating income? Why? 3. The company marketing e president Devesa new ses promotional cost $140.000 would increase sales to 220.000 pages. Should the company had the promotion you and co o n margina costing income statements for o n ly for the year egn e conver s ation com m en Requirement 1. Prepare both conventional absorption Goggles Only Income Statement(Absorption Costing) For the Year Ended December 31 Da LOSS Operating expenses Sales price Variable manufacturing expense peut Sales commission expense per und Food manucuring overhead Fixed operating expenses Number of produced Choose from any lost or enter any number in the input fields and then click Check Answer

Answer 1

1. Absorption Costing Income Statement

Sales Revenue	$      86,10,000
Less Cost of Goods sold	$      49,20,000	=(15*220000+1980000)/220000*205000
Gross Profit	$      36,90,000
Less Operating Expenses	$      14,60,000	=205000*6+230000
Net Operating Income	$      22,30,000

Variable Costing Income Statement

Sales Revenue	$      86,10,000
Less Variable Costs
Cost of Goods sold	$      30,75,000	=205000*15
Sales Commission	$      12,30,000	=205000*6
Contribution Margin	$     43,05,000
Less Fixed Expenses
Fixed Manufacturing Overhead	$      19,80,000
Fixed Operating Expenses	$        2,30,000
Net Operating Income	$     20,95,000

2. Absorption costing shows higher income since fixed manufacturing overhead is carried forward in ending inventory

3. No the company should not go on with the promotion, as it will increase profits as shown below, but profit per unit will decrease

Sales Revenue	$      92,40,000
Less Cost of Goods sold	$      52,80,000	=(15*220000+1980000)
Gross Profit	$      39,60,000
Less Operating Expenses	$      16,90,000	=220000*6+230000+140000
Net Operating Income	$      22,70,000