Question

Homework: Bonus Question CH 6 (5 points available) Sav Score: 0 of 5 pts 1 of 1 complete HW Score: 0%, 0 of 5 E6-40A (similar to) Question Help The word diets that follow pertanto Rico Radical Eyewear, a manufacturer of swimming pools (the company had no bacioning inventory Click the icon to view the data.) Requirements 1. Prepare both conventional (absorption costing and contribution margin (variable conting income statements for Rick's Radical Eyewear for the year 2. Which statement shows the higher operating income? Why? 3. The company marketing vice president beleven a new sales promotion that costs $180.000 would berome sales to 220.000 gojes. Should the company po stead win the promotion? Cine your reason Requirement 1. Prepare bon conventional (boston conting) and contribution margin (variable contra income statements for Rok Radical Eyewear for the year. Begin with the conventional berption conting come statement Rick's Radical Eyewear Income Statement (Absorption Costing) Data Table For the Year Ended December 31 Sales revenue Less Castors sold Grosspot Wirable manufacturing experts per Sales como perso per unit Lass: Opering penses Pedaling van $190.000 Operwing income Federing expenses 240 000 Number of good produced 220.000 200.000 Number of sold vo $ 9 Done Choose from any list or enter any number in the input folds and then click Check Answer Clear Al 5 parts porning

the questions that need to be answered are 1,2,3

Answer 1

1)

Fixed manufacturing overhead per unit = $1,980,000 / 220,000 = $9 per unit

Cost of goods sold = (Variable manufacturing cost + Fixed manufacturing overhead per unit) X Units sold

Cost of goods sold = ($18 + $9) X 206,000 = $5,562,000

Operating expenses = (Sales commission per unit X Units sold) + Fixed selling and administrative expenses

= ($4 X 105,000 units) + $200,000

= $620,000

Income statement absorption costing:

Net sales revenue	$8,034,000
Cost of goods sold	$5,562,000
Gross profit	$2,472,000
Operating expense	$2,094,000
Operating income	$378,000

2)

Variable expense = (Variable manufacturing cost per unit + Selling commission per unit) X Units sold

= ($18 + $9) X 206,000 = $5,562,000

Fixed expenses = Fixed manufacturing overhead + Fixed selling and administrative costs

= $1,980,000 + $240,000 = $2,220,000

Income statement variable costing:

Net sales	$8,034,000
Variable expense	$5,562,000
Contribution margin	$2,472,000
Fixed expenses	$2,220,000
Operating income	$252,000

2. The absorption costing income statement shows a higher operating income. The operating income under absorption costing is higher because the unit sold has less fixed manufacturing overhead. The difference in operating income between the two income statements is attributable to the Fixed manufacturing overhead attached to the units in the ending inventory.

3.

Contribution margin per unit = Contribution margin / Unit sold

= $2,472,000 / 206,000

= $12 per unit

Present sales = 206,000 units

Sales increases to = 220,000 units

Excess unit sold = 220,000 units - 206,000 units

= 14,000 units

Contribution margin for 25,000 units = $12 per unit X 14,000 units = $168,000

Promotional cost is $150,000 which is less than Contribution margin of $168,000

The company should go ahead with the promotion because the additional contribution margin is more than the additional cost of promotion.