5) INSTRUCTIONS:

REQUIRED:

Sogment yaniable costing income statement and effect on operatiag income of change in operations Vaidespin Company manufactures three sizes of camping tent=-small (S), medium (M). and large (L), The incorme atatement has conaistently indicated a nat: loss for the M size, and management is considering three proposalsi (1) continue Size M. (2) discantinue size M and reduce total outaut accordingly. or (3) diccontinue Size Mand conduct an advertizing campaign to oxpand the sales of Size 5 so that the eatire plant capocity can continue to be uzod. If Proposal 2 is selected and 5 izo M is disconsinued and prodoction curtalied, the annual foued production costs and foed operating expenses could be reduced by Z46,080 and $32,240, respectively. If Properal 3 is selected, it is anticipated that an additional annoal expenditure af \$34,560 for the rental of adelitisfal Warehouse apace would yield an additional 1304 in Size S sales volume. it is aiso assumed that the incressed production of size 5 wouid otil ze the plant facilities released by the discontimence of Size M. The sales and cortz have been relatively steble over the past fow yeara. and they are expected to remain so for the fareseeable future. The ncome statement fer the past year ended June 30,20y, is as follows! costs shouid be deducted from the total contribution margin, as reported it the "Total" column, to determine operating income reduced below its present level if Proporal 2 is accepted. 3. 9repare an income statement in the variable costing format, indicating the projected annual operating income if Proposal 3 is accepted. Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contributon margin as reported in the "Total" column. For purposer of this problem, the expenditure of $34,560 for the rental of additional warehouse space can be added to the fixed operating expenzes. 4. By how much would total annual operating income increase above its present level if Proposal 3 is accepted