10 Sales price $144.00 $125.00 11 58.00 54.00 Variable cost of goods sold Variable selling and administrative expenses 12 15.00 11.00 Required: 1. Prepare a contribution margin analysis report for the year ended December 31. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon () will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign. 2. At a meeting of the board of directors on January 30, the president, after reviewing the contribution margin analysis report, made the following comment: It looks as if the price increase of $19 had the effect of decreasing sales volume. However, this was a favorable tradeoff. The variable cost of goods sold was less than planned. Apparently, we are efficiently managing our variable cost of goods sold. However, the variable selling and administrative expenses appear out of control. Let's look into these expenses and get them under control! Also, let's consider increasing the sales price to $160 and continue this favorable tradeoff between higher price and lower volume." Do you agree with the president's comment? Explain. 10 Fixed expenses 92,160.00 103,680.00 115,200.00 311,040.00 11 Total operating expenses $224,640.00 $259,180.00 $311,040.00 $794,860.00 12 Income from operations $68,480.00 $(17,250.00) $34,560.00 $85,790.00 Required: 1. Prepare an income statement for the past year in the variable costing format. Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin, as reported in the "Total" column, to determine income from operations. * 2. Based on the income statement prepared in (1) and the other data presented, determine the amount by which total annual income from operations would be reduced below its present level if Proposal 2 is accepted. If a loss is incurred, enter that amount as a negative number using a minus sign. 3. Prepare an income statement in the variable costing format, indicating the projected annual income from operations if Proposal 3 is accepted. Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin as reported in the "Total" column. For purposes of this problem, the expenditure of $34,560 for the rental of additional warehouse space can be added to the fixed operating expenses.* 4. By how much would total annual income increase above its present level if Proposal 3 is accepted? * Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon () will automatically appear if it is required. Enter all amounts as positive numbers. Variable Costing Income Statement (Label) 1 Size S Size M Size L Total 2 Sales $668,000.00 $737,300.00 $956,160.00 $2,361,460.00 3 Cost of goods sold 300,000.00 357,120.00 437,760.00 1,094,880.00 4 Cost of goods sold 5 132,480.00 155,500.00 195,840.00 483,820.00 6 $235,520.00 $512,620.00 7 Fixed costs: 8 Cost of goods sold $385,930.00 9 Operating expenses 311,040.00 10 Total fixed costs $696,970.00 11 $85,790.00 Variable Costing Income Statement (Label) 1 Size S Size L Total 2 $956,160.00 $1,536,400.00 690,000.00 $2,492,560.00 1,127,760.00 3 437,760.00 4 $304,704.00 5 994,704.00 6 7 (Label) 8 $385,930.00 9 311,040.00 10 11 $132,726.00 Valdespin Company manufactures three sizes of camping tents-small (S), medium (M), and large (L). The income statement has consistently indicated a net loss for the M size, and management is considering three proposals: (1) continue Size M, (2) discontinue Size M and reduce total output accordingly, or (3) discontinue Size M and conduct an advertising campaign to expand the sales of Size S so that the entire plant capacity can continue to be used. If Proposal 2 is selected and Size M is discontinued and production curtailed, the annual fixed production costs and fixed operating expenses could be reduced by 1,080 and $32,240, respectively. If Proposal 3 is selected, it is anticipated that an additional annual expenditure of $34,560 for the rental of additional warehouse space would yield an additional 130% in Size sales volume. It is also assumed that the increased production of Size S would utilize the plant facilities released by the discontinuance of Size M. The sales and costs have been relatively stable over the past few years, and they are expected to remain so for the foreseeable future. The income statement for the past year ended June 30, 20Y9, is as follows: 1 Size 5 Size M Size L Total 2 Sales $668,000.00 $737,300.00 $956,160.00 $2,361,460.00 3 Cost of goods sold: 4 Variable costs $300,000.00 $357,120.00 $437,760.00 $1,094,880.00 5 Fixed costs 74,880.00 138,250,00 172,800.00 385,930.00 6 Total cost of goods sold $374,880.00 $495,370.00 $610,560.00 $1,480,810.00 1 Gross profit $293,120.00 $241,930.00 $345,600.00 $880,650.00 8 Operating expenses: 9 Variable expenses $132,480.00 $155,500.00 $195,840.00 $483,820.00 10 Fixed expenses 92,160.00 103,680.00 115,200.00 311,040.00