Financial and Managerial Accounting: P21-29A The 2016 data that follow pertain to Frank’s Fantastic

Financial and Managerial Accounting
P21-29A Using variable and absorption costing, making decisions
The 2016 data that follow pertain to Frank’s Fantastic Eyewear, a manufacturer of swimming goggles. (Frank’s Fantastic Eyewear had no beginning Finished Goods Inventory in January 2016.)
Number of goggles produced 180,000
Number of goggles sold 145,000
Sales price per unit 35
Variable manufacturing cost per unit 15
Sales commission cost per unit 1
Fixed manufacturing overhead 720,000
Fixed selling and administrative costs 140,000

1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Frank’s Fantastic Eyewear for the year ended December 31, 2016.
2. Which statement shows the higher operating income? Why?
3. Frank’s Fantastic Eyewear’s marketing vice president believes a new sales promotion that costs $50,000 would increase sales to 155,000 goggles. Should the company go ahead with the promotion? Give your reasoning.
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