The annual data that follows pertian to Joe\'s Pool Stuff, a manufacturer of swi

Question

The annual data that follows pertian to Joe's Pool Stuff, a manufacturer of swimming goggles (the company had no beginning inventories):

Requirements

1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Joe's Pool Stuff 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 $140,000 would increase sales to 205,000 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 Joe's Pool Stuff for the year. Begin with the conventional (absorption costing) income statement.

Joe's Pool Stuff Income Statement (Absorption Costing)

For the Year Ended December 31

Sales price $43 Variable manufacturing expense per unit $16 Sales commision expense per unit $11 Fixed manufacturing overhead $1,640,000 Number of goggles produced 205,000 Number of goggles sold 195,000

Explanation / Answer

1) Income statement as per both the methods

2) As per the variable costing the profit is more because the cost of production as per absorption costing is based on production and variable costing on the basis of selling goggles:

3) The company should go ahead in sales promotion becuase this would in trun increases the sales/revenue of the company.

Particulars Absorption costing Units sold 195000 Sales @195000*43 8385000 Cost of goods sold: Variable cost@205000*16 3280000 fixed manufacturing 1640000 Gross profit 3465000 Indirect expense: Selling expense(195000*11) 2145000 Net income 1320000

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.